Frances Janisch had a daughter five years ago. Now she and her husband may not have a second child because income from their photography business in New York City is erratic.
“I always imagined I would have two, so it bothers me that I don’t,” said Janisch, 41, who grew up with a large extended family in South Africa. “It has everything to do with economics.”
Similar decisions to postpone or forgo having babies may delay the recovery from the five-year U.S. housing slump and restrain future consumer spending on goods and services from child care to diapers, soaps and toothpaste. Expenditures associated with one child for a middle-income family are $226,920 over 17 years, with housing the biggest expense, the U.S. Department of Agriculture estimated in June.
The number of births fell to an estimated 4 million last year, the fewest since 1999, according to National Center for Health Statistics data. American families -- whose finances have been hurt by high unemployment, falling home prices and low pay raises -- lack confidence to plan for “explosions in spending” required by a new child, says Peter Francese, a demographic- trends analyst in Exeter, New Hampshire, for the MetLife Mature Market Institute. U.S. births may not recover until 2013, he predicts.
Families in the child-bearing years “have been hit hard” by the recession, said Mark Zandi, chief economist at Moody’s Analytics Inc. in West Chester, Pennsylvania, who estimates population for his economic forecasts. “Slower population growth will exacerbate the slowing in economic growth.”
Weak Employment Expansion
He predicts expansion of 2.6 percent in the fourth quarter and in 2012, too weak to bring down unemployment from averaging close to 9 percent next year. The jobless rate has remained near or above that level since April 2009.
“The potential impact of a more-sluggish birthrate is huge,” said Mark Vitner, a senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina. “More households will likely choose to rent for longer periods of time, and there will be fewer trade-up buyers. I fear this is a trend that will likely persist.”
The impact may be muted if recent signs of a pickup in the economy continue. Today’s number of births is similar to 2001, when the U.S. was in “the early phase of expansion” after an eight-month recession, said Charles Lieberman, chief investment officer with Advisors Capital Management LLC in Hasbrouck Heights, New Jersey, and a former head of monetary analysis at the Federal Reserve Bank of New York.
Deferred, Not Lost
“Declines in births are births that are deferred, not births that are lost,” he said.
Consumers’ views on the U.S. outlook improved in November, reaching a four-month high, according to the Bloomberg Consumer Comfort Index. Retail sales rose 0.5 percent last month, beating the 0.3 percent estimate in a Bloomberg News survey. First-time claims for unemployment insurance fell in the week ended Nov. 12 to the lowest since April, a sign the labor market may be rebounding, Labor Department figures showed last week.
Sales of previously owned homes unexpectedly rose in October, a report from the National Association of Realtors showed today, a sign falling prices may be attracting buyers. Purchases increased 1.4 percent to a 4.97 million annual rate. The median house price dropped 4.7 percent from a year earlier. Total sales in 2010 were 4.9 million, compared with a peak of 7.07 million in 2005 during the housing boom.
“Birthrates usually fall during recessions,” said Gary Becker, a University of Chicago professor and 1992 Nobel laureate who studies human behavior. “Their effects on the economy depend on whether births rise when good times come, partly to make up for these delays.”
A return to more babies can’t come too soon for household- product makers.
“The low birthrate continues to be lower than was forecast early in the year, and so you’re just not having as many new moms,” Thomas Falk, chief executive officer of Kimberly-Clark Corp. (KMB), maker of Huggies diapers, said on a conference call with investors Oct. 24. “With the weaker economy in the near term, I’d say the category is probably going to be a little softer in 2012 than our prior long-range forecast would have indicated.”
Newell Rubbermaid Inc. (NWL), which makes strollers and car seats, faces “sustained challenges” in its baby business, Chief Executive Officer Michael B. Polk said in a conference call with investors Oct. 28. Birthrates “just haven’t recovered,” so “we’re going to be living with slow-to-no growth markets next year.”
Consumer surveys and sales of infant products reinforce his concern. A Nielsen Co. analysis for Dallas-based Kimberly-Clark forecasts U.S. births will drop 0.4 percent this year to 3.992 million, the first time under 4 million since 1999, and will be “flat to slightly negative” at about 3.989 million in 2012.
Sales of diapers in the 52 weeks ended Sept. 4 fell 5 percent from a year earlier to $2.29 billion, according to Chicago-based market researcher SymphonyIRI Group. The report excludes Wal-Mart Stores Inc. (WMT), club stores and convenience stores. The top brands are Huggies and Procter & Gamble Co. (PG)’s Pampers.
Unit sales of these and other products including toothpaste, soap, tissues and paper towels may be unchanged or rise no more than 1 percent annually during the next five years, estimates Ali Dibadj, an analyst at Sanford C. Bernstein & Co., who rates Kimberly-Clark, Clorox Co. (CLX) and Colgate-Palmolive Co. (CL) as “market perform.”
“There is a strong correlation between birthrates and future overall consumer packaged-goods growth rates, not just the immediate impact on obvious categories like diapers and baby wipes,” he said. “Given that price increases may be difficult to come by in the developed world, volume growth will be important, and this slowing population growth will curtail that.”
The annual cost of raising a child ranges between $11,880 and $13,830 for a two-parent family earning $57,600 to $99,730, according to the Department of Agriculture. After housing, the largest expenses are for child care, pre-college education and food. The total for a child in an upper-income family may reach $377,040 by age 17.
The fall-off in births is part of a vicious cycle that stems partly from the housing slump. States with the largest economic declines in 2007 and 2008 were most likely to have relatively large declines in babies from 2008 to 2009, based on an analysis in October by the Pew Research Center.
Arizona, Florida, Georgia and Nevada all suffered birthrate drops that exceeded the U.S. average, Pew data show. Housing prices in these states’ large markets all fell more than nationally in the past three years, according to S&P/Case- Shiller home-price indexes.
Housing equity has been a key source of spending on children, according to a National Bureau of Economic Research study published last month by University of Maryland economists Lisa Dettling and Melissa Kearney. Each 10 percent rise in housing prices results in a 4 percent increase in births among homeowners, they found.
‘Births Reflect Confidence’
“People don’t have children when they don’t feel secure enough to provide for those children,” demographer Francese said. “Births reflect confidence in good or rising income over the next 10 years.” A shortfall “reflects a lack of hope for the future.”
Family size fell during the Great Depression to an average of 2.3 children in 1933 from 3.5 children in 1900, according to the U.S. Centers for Disease Control and Prevention. The number rebounded to as many as 3.7 in the 1950s, then began to decline again with the advent of modern contraceptives, stabilizing at about two children in 1972, government data show.
By 2015, women in their childbearing years may average 1.75 babies each, a 30-year low, while “ Americans still believe that two or more children is ideal,” said Bradford Wilcox, a sociology professor and director of the National Marriage Project at the University of Virginia in Charlottesville.
One reason for the projected decline is a delay in marriages. The number of people getting wed -- which often precedes births -- declined to 6.8 per 1,000 in 2009 from 8.2 in 2001, according to National Center for Health Statistics data.
“Whatever people may say or think about marriage and love, at some level most Americans still see marriage as partly an economic institution,” and having a child involves similar financial considerations, Wilcox said, adding that the median wedding costs about $17,000.
Janisch, the photographer, said income for her small business is tied to the advertising industry, and the 18-month recession that ended June 2009 has hurt traditional print-media ads. This means the amount she makes fluctuates from month to month, and the variance leaves her and her husband unsure about making a long-term commitment.
“We thought, we will wait and see and things will get better,” she said. “They just haven’t.”
Meanwhile, costs are rising for insurance, child care and food, she said. Just a hospital stay to have a baby might require a co-payment of as much as $3,500 under her policy, she said. A nanny might run $400 a week.
Dr. Alan Singer, 56, a family therapist in Highland Park, New Jersey, said he often recommends that couples facing financial uncertainty delay consideration of having a child for three or six months, then evaluate their plans again.
“People have a memory of how they were raised and say that is the family size we want,” said Singer, author of “Creating Your Perfect Family Size.” Now, however, “they are holding on to every dollar because everyone is afraid” and childbirth requires a “leap of faith.”
Two-thirds of 1,000 mothers in an August Johnson & Johnson (JNJ) BabyCenter survey said financial concerns would affect how many children they have, with most planning two rather than a desired three.
Some researchers say they are hopeful the shortfall of births may ease in the next few years as consumer confidence recovers and women past their 20s finally have children. Women older than 35 or 40 may feel they can’t wait longer without risking infertility, said Elizabeth Gregory, a professor and director of women’s studies at the University of Houston.
“There is pent-up demand for kids,” said James Paulsen, chief investment strategist at Minneapolis-based Wells Capital Management. “As soon as people get comfortable, those planning to have children will still have them.”
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