Birth rates, hemlines and divorce: how to predict the next recession

In the search for how to predict the next recession, – sadly, you just know another one will be along sooner or later – economists are willing to look well beyond the traditional statistics.

Researchers at the National Bureau of Economic Research think they might have found a new way to spot recessions early, based on a long-running truism that birthrates fall during recessions. They have gone one step earlier and looked at conception rates instead, and found these drop several months before any other signs of a recession – meaning we might have a new way to see them coming. However, as a sign no indicator is perfect, the US conception rate appeared to drop sharply late in 2014, with no corresponding recession having followed – yet.

It’s not the first attempt to find a nontraditional way to spot recessions – here are a few others.

The hemline index

This disputed measure was first proposed in 1926, and suggests that the hemline of women’s skirts inch their way up (into miniskirts) during economic boom times, and become longer during recessions. More recent evidence has suggested that while there is an effect here, skirt length only changes a few years after the economic cycle – making it pretty useless for prediction.

The skyscraper index

Proposed – tongue firmly in cheek – by Barclays, this index posits that the construction of a new world’s tallest building heralds the coming of a recession; a pleasing theory to those who think recessions follow periods of irrational excitement with too much money flowing to grand projects. In its favour, this index has the completion of the Chrysler building and Empire State Building during the great depression, but more scientific analysis has not been so supportive.

The “R-word” index

This unusual win for media accuracy comes courtesy of the Economist, which checked the simple observation that when financial newspapers start talking about recessions – the “r-word” – one usually follows. They’re not usually very well ahead of the curve, but if you spot that spike, bad times may be ahead.

The coupon index

This one is quite neat: sites tracking the redemption rate of online coupons might help to show the start of a recession – as it’s a good sign that consumers are starting to watch the pennies, which doesn’t bode well for confidence. That said, there was a big spike in coupon redemption late in 2012, which wasn’t followed by a downturn.

The divorce index

There are two competing arguments about what recessions do to divorce rates: one is that because they make us miserable, we split up more. The other is that because divorces are expensive, people delay them during recessions. The evidence is on the side of the latter: during the last recession, divorces fell in both the US and the UK– so if couples start staying together, even that could be bad news. That’s economics for you.