By The Sizemore Letter<\/u><\/p>\n
Americans stopped having babies when the financial crisis hit in 2008.<\/p>\n
I exaggerate, of course; there were nearly 4 million babies born in 2012.\u00a0 Yet this number was an 8% decline over the pre-crisis level, and this despite a rise in the number of women of peak childbearing age.<\/p>\n
When you look at the fertility rate<\/i> (births per 1,000 women aged 15-44), which takes into account the rise in the number of women in peak childbearing age, the story looks a lot worse.\u00a0 American fertility hit a new all-time low in 2011, at barely 63 births per 1,000 potential mothers.<\/p>\n
Those of us who are not professional demographers have a hard time conceptualizing\u00a0 \u201cbirths per 1,000 women,\u201d but the \u201ctotal fertility rate\u201d is a little easier to understand.\u00a0 This is the total number of children the average woman can expect to have over her lifetime.\u00a0 In the developed world, the \u201creplacement\u201d rate is 2.1 babies per woman.<\/p>\n
By this measure too, American fertility had sunken to new recent lows at 1.9 babies per woman.\u00a0 As I wrote last year, the American birthrate\u2014long the pride of red-meat-eating Americans\u2014is below the level of France<\/a>. \u00a0France!<\/p>\n If you\u2019ve read my work for any length of time, then you know I believe this trend to be temporary.\u00a0 The Baby Boomers of the 1950s and 1960s had a baby boom of their own in the 1980s and early 1990s.\u00a0 Now this generation\u2014alternatively called the \u201cMillennials,\u201d the \u201cEcho Boomers\u201d or \u201cGeneration Y\u201d\u2014are entering their family formation years, and you can expect another baby boom as a result.\u00a0 The sheer number of potential mothers makes it all but inevitable.<\/p>\n New birth data suggests that the post-crisis baby bust may be ending<\/b>.\u00a0 Preliminary data for 2012 shows births and the birth rate essentially unchanged from 2011<\/a> after declining every year since 2007.<\/p>\n This is a big deal.\u00a0 And let me tell you why.<\/p>\n Children and family formation have a massive, disproportionate effect on the economy.\u00a0 There are the obvious beneficiaries\u2014makers of everything from diapers to baby formula to cribs\u2014but the most important effects show up elsewhere.<\/p>\n Consider housing.\u00a0 Before my first son came along, I was living the life of a frivolous urbanite, renting an uptown apartment and happily avoiding the responsibilities of homeownership.\u00a0 Today, I own a house in the suburbs\u2026along with the mortgage albatross hung around my neck.\u00a0\u00a0 I even have a tree swing in the front yard\u2026and a bouncing house with a slide in the back.<\/p>\n The point here should be clear: an uptick in the birthrate should mean a boom in the starter home market, which in turn means a return to normalcy for banks.\u00a0 This is a sustainable, virtuous cycle that has yet to really begin.\u00a0 Get ready for it.<\/strong><\/p>\n Less directly\u2014though by no means less importantly\u2014are harder-to-quantify metrics such as productivity.\u00a0 I\u2019m more productive that I was pre-kids.\u00a0 I have no choice.\u00a0 I have hungry mouths to feed.<\/p>\n Before you dismiss the last point as fluff, consider that the biggest productivity boom (and consequently the biggest drop in inflation) in the lifetimes of anyone reading this article came in the early 1980s, as the Baby Boomers were in the early stages of their family formation cycle.\u00a0 Yes, Fed monetary policy under Paul Volcker had a lot to do with the drop in inflation.\u00a0 But don\u2019t underestimate the long-term effects on productivity growth. of the Baby Boomers getting haircuts and real jobs.<\/p>\n Generation Y\u2019s peak birth year was 1990.\u00a0 The average age of mother at first birth is around 26 years\u2026which is a number that continues to rise due to would-be mothers staying in school longer and getting a larger share of advanced degrees.<\/p>\n So, doing a little math here, we can add 26 to 30 years to 1990 and come up with an estimate for a boom in new mothers peaking in the years 2016-2020.<\/p>\n All babies are roughly equal in terms of demand for staple items like formula, diapers and clothes.\u00a0 But first babies are more economically significant than their later siblings because they are the ones that force their parents\u2019 lifestyle change.\u00a0 If I may oversimplify a little, they are the reason we buy homes and furnish them.<\/p>\n What are we to do with this information?<\/p>\n You could buy shares of infant formula makers such as Abbot Labs ($<\/span>ABT<\/a>) <\/b>or Mead Johnson ($<\/span>MJN<\/a>),<\/b> of course.\u00a0 Though being global companies, these companies tend to be as affected by births in China as births here in the United States.\u00a0 And you could also buy shares of diaper producers such as Procter & Gamble ($<\/span>PG<\/a>) <\/b>and Kimberly-Clark ($<\/span>KMB<\/a>)<\/b>, though the same logic applies.<\/p>\n For more direct exposure to an American baby boom, consider buying a portfolio of starter homes with a goal of eventually selling out to a Gen Y family in a couple years.\u00a0 Or better yet, consider starting a new business that caters to new mothers and their kids.<\/p>\n You want some examples of low-hanging fruit?\u00a0 How about a website with product reviews of strollers, cribs and other baby products with an online store that links to a major retailer like Amazon ($<\/span>AMZN<\/a>)<\/b>? \u00a0It is a business with very little in start-up costs and a manageable amount of “sweat equity.”<\/p>\n Or better yet, start a handyman service for assembling baby gear to save fathers like myself hours of late nights of cursing and reading undecipherable instruction manuals upside down.<\/p>\n Disclosures: Sizemore Capital is long ABT, MJN, PG, and KMB<\/p>\n See also:\u00a0 U.S. Births “essentially unchanged” in 2012 after Declining for Four Consecutive Years<\/a><\/p>\n SUBSCRIBE\u00a0<\/b><\/a>to\u00a0Sizemore Insights<\/em>\u00a0via e-mail today.<\/p>\n