American consumers with fewer babies limit spending

by The City Wire staff ([email protected]) 93 views 

Debra Mollen, 41, a psychology professor in Denton, Texas, said she and her husband don’t plan to have children as they strive to pay down their mortgage and save for retirement.

“Children are really expensive,” Mollen said, and the 2008 financial crisis shows the importance of building a nest egg. “Retirement is not an option for a lot of folks.”

Mollen isn’t alone, as Americans have had fewer babies each year since the 2008 financial meltdown, with births falling to a 12-year low in 2011, according to the National Center for Health Statistics. The low birth rate and reduced immigration resulted in the smallest gain in population since World War II, which may hurt spending on everything from Huggies diapers to pregnancy kits, child care and education.

“Consumption bumps up when families have children,” said Dean Maki, chief U.S. economist at Barclays Plc in New York, who worked at the Federal Reserve from 1995 to 2000, and researched household finances. “The fact we are seeing fewer births is something of a drag on consumer spending. To the extent this turns out to be a persistent trend, it is something to be worried about.”

The population increased by 0.92%, or 2.8 million people, to 311.6 million from the end of the decennial population count on April 1, 2010, to July 1, 2011, the slowest rate over a similar period since the mid-1940s, the Census Bureau said.

The number of births fell to 3.96 million in 2011, and it may fall again this year to 3.94 million, forecaster Demographic Intelligence predicted in July.

“A culture of risk aversion among young adults” is behind the drop, the Charlottesville, Va.-based firm said.

“Population is a very strong motivation for consumer spending,” said Chris Christopher, director of U.S. and global consumer economics research at IHS Global Insight in Lexington, Mass. “Weak population growth due to fewer children will play itself out in years to come.”

As most U.S. parents know, having a child is costly. A middle-income family having a baby in 2011 will spend about $234,900 over 17 years for things like food, shelter, transportation and child care, the U.S. Department of Agriculture said in June.

Household purchases rose at a 1.5% rate from April through June, down from a 2.4% gain in the prior quarter and the weakest increase in a year, according to the Commerce Department. Purchases added 1.05 percentage points to last quarter’s 1.5% pace of economic growth, which was down from 2% from January through March.

“To the degree that family formation is being suppressed, we should be concerned,” said Neal Soss, chief economist at Credit Suisse in New York. “That holds back housing. It holds back all the spending associated with housing. Family formation is a very important motivator of economic growth.”

Few companies have better first-hand knowledge of the drop in births than Princeton, N.J.-based Church & Dwight Co., manufacturer of First Response pregnancy tests. With birth rates dropping, “as far as pregnancy kit usage, it’s been a little bit tough lately,” CEO James Craigie said at the Deutsche Bank Consumer Conference in Paris in June.

The company is also the largest maker of condoms, with its Trojan brand, and Craigie said there has been an impact there as well.

“More people are depressed,” he said. “So sex has gone down and condom use has gone down.”

Dallas-based Kimberly-Clark Corp., which makes Huggies disposable diapers and training pants, is “feeling the full effects of three years of low birth rate declines,” Chief Executive Officer Thomas Falk said in a conference call July 26.

The decision to have children goes beyond finances as some women focus on careers, or their relationship with a spouse, and want time for other interests, said Mollen, a professor at Texas Woman’s University who has written that “childfree women” face social pressures to become mothers.

Still, “I do think money factors into it,” she said. “Certainly, income has to be considered.”

The median age for a first marriage in 2011 was 28.7 years for men and 26.5 years for women, each up by 1 year or more from 2006, before the recession, Census data show. The number of marriages dropped to 6.8 per 1,000 people in 2010 from 7.6 in 2005, according to the National Center for Health Statistics in Hyattsville, Md.

“Many couples are postponing or forgoing marriage until the financial foundations of their relationship improve,” said sociologist Bradford Wilcox, director of the National Marriage Project at the University of Virginia in Charlottesville. “Given high rates of unemployment and underemployment for young adults, this pattern of postponing the wedding among many young adults is likely to continue until the United States sees a robust recovery kick in.”

The Great Depression serves as a precedent. The number of children per family fell to 2.3 on average in 1933 from 3.5 in 1900, according to the U.S. Centers for Disease Control and Prevention. It 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.

A reacceleration in births may come sooner than it did after the depression, said Mark Zandi, chief economist at Moody’s Analytics Inc. in West Chester, Pa., who expects the number to ”significantly pickup” in the second half of this decade.

The so-called echo boom generation, or those born in the late 1980s and early 1990s to the post-World War II baby boomers will soon have families of their own, he said. That generation will have more children “when the economy is back closer to full employment,” he said.