🐣 Baby boom

Plus: Recession talk | Wednesday, October 19, 2022

Open in app View in browser   Presented By Global X ETFS   Axios Markets By Emily Peck and Matt Phillips · Oct 19, 2022 ⚾️ Good morning! We're psyched about the Yankees, but before we start thinking about what's next for them in Houston let us turn to markets. Today's newsletter is 1,185 words, 4.5 minutes. 🚨Situational awareness: Mortgage applications are at their lowest level in 25 years, per fresh data from the Mortgage Bankers Association. Rates are at a 20-year-high — 6.94%.     1 big thing: Remote work's mini baby boom Illustration: Natalie Peeples/Axios   Remote work likely contributed to a mini baby boom in 2021 among women in the U.S. — a reversal of a yearslong decline in the birth rate, according to a working paper published by three economists this week, Emily writes. Why it matters: It's surprising. Economists predicted a crash in birth rates at the outset of the pandemic. The quick economic recovery and the rise of remote work may have changed the trajectory, the authors say. The findings suggest that workplace flexibility might be one solution to the long-term issue of falling birth rates — a possible driver of declining economic growth — seen across richer countries. By the numbers: The CDC released preliminary data on 2021 birth rates earlier this year and found a small increase, but for this new paper, the researchers dug deeper. They were able to further parse new restricted-use microdata from the CDC and look at births to U.S.-born mothers — compared with births to foreign-born mothers. They found that the birth rate for U.S. mothers increased by 6.2% relative to the 2015-2019 trend line — and that the pandemic led to a net increase in births for U.S.-born mothers of around 46,000 children. They also discovered that a widely publicized drop in fertility rates in 2020 — agonized over in the press — was largely due to a sharp decline in births to foreign-born women, who were blocked from entering the country. In 2020-2021, there were 91,000 fewer births to foreign-born women. This appears to be the first time anyone's put a hard number on births among foreign-born mothers. It's "a significant contribution," to fertility rate studies, said Phillip B. Levine, an economist at Wellesley who studies birth rates but was not part of the working paper. What's happening: The increase in birth rates was more pronounced for first-time mothers and college-educated women. Much of that cohort was able to work from home, which gave parents more time and flexibility to deal with the life changes and demands that pregnancy and a new baby bring. For example, the switch to working remotely in 2020 pushed forward the decision to start a family for Anne Lopez, a 32-year-old tech worker in San Jose, California. Lopez credits the fact she and her husband could spend less time commuting and more time parenting. It was "the key accelerator," she said. Yes, but: More work needs to be done to definitively isolate the baby boom's causes, said Hannes Schwandt, an economist at Northwestern University, who co-authored the paper. Another reason for the uptick could be that women had a harder time accessing abortion care during the pandemic, he said. The intrigue: Recessions usually trigger a drop in birth rates; people don't want babies when times are hard. Not this time. Economists credit the massive influx of government spending. What to watch: The researchers also looked at birth data from California in 2022 and found that the uptick there has continued, suggesting the pandemic changed the trajectory of fertility in the U.S. long term. Go deeper.     2. Catch up quick 🛢 Biden to release more oil from reserves ahead of midterms. (Axios) 📈 U.K. inflation accelerates to 10.1% on rising food prices. (AP) ✨ IRS releases inflation adjustments for 2023. (Axios)     3. ⚠️ Recession warnings light up Data: FactSet; Chart: Erin Davis/Axios Visuals Economists and market indicators seem increasingly certain that the U.S. is either already in a cyclical downturn, or soon will be, Matt writes. Driving the news: Perhaps the most-watched market indicator for predicting recessions — a so-called inversion of the yield curve between 3-month and 10-year Treasuries — is now near at hand. How it works: An inversion is a bit of bond market jargon that describes an unusual situation in which shorter-term Treasury yields rise above yields on Treasuries that mature later. In recent days, the yield on 3-month Treasury bills shot sharply higher, while the yield on the T-note has been steady. Now, the 10-year is yielding just 0.12 percentage points more than the 3-month bill — perilously close to going negative, aka inverting. Why it matters: While large parts of the yield curve have been inverted for months, the relationship between 3-month and 10-year Treasuries has a special status. Over the last 60-odd years, when this particular part of the Treasury yield curve has inverted, a recession has followed within two years. That makes it perhaps the single best market-based indicator of recessions. Check out this Q&A from Duke University finance professor Campbell Harvey, the dean of yield curve watchers, for more. Zoom out: The yield curve isn't alone. Since yet another hotter-than-expected inflation report earlier this month, economic forecasters have turned increasingly dour. An economic model from Bloomberg now suggests a 100% probability of a recession within 12 months (though a separate Bloomberg survey puts it at 60%). A similar Wall Street Journal poll of economists showed the odds at 63% in August, up from 49% in July. Unemployment remains remarkably low, but traditional rules of thumb say we're already in a recession since we've had two straight quarters of contracting GDP. The official call on recessions is made by the NBER, however. The bottom line: Both the markets and economists seem to think the current downturn, soft patch, or whatever you want to call it, is going to get worse.     A message from Global X ETFS Build a greener investment portfolio     Government policies and private sector commitments to combat climate change are driving demand for more sustainable buildings. We recently explored the long-term investment case for companies involved in the development, management and technology powering green buildings. Learn more.     4. Downside protection Data: FactSet; Chart: Axios Visuals Banks say they're salting away hundreds of millions of dollars this quarter to cover loans that could go bad during a deep recession — and that's eating into profits, Matt writes. The big picture: Growth in loan loss reserves has been a leitmotif of the earnings announcements from big banks over the last week. Bank of America, Wells Fargo, JPMorgan Chase and Citigroup collectively announced plans to sock away nearly $2 billion as they announced their results for the third quarter in recent days. The bottom line: The rise in loan loss reserves doesn't mean banks are certain a bad recession is a done deal. But it shows they see it as a rising risk.   Share Axios and earn rewards If you like this newsletter, your friends may, too! Refer your friends and get free Axios swag when they sign up. Be a good friend and share   5. More signs of stress Data: BofA Global Research; Chart: Axios Visuals Indicators of bond market stress keep hitting levels not seen since the early days of the COVID market crisis, Axios' Kate Marino writes. The latest: BofA's Credit Stress Indicator (CSI) just breached a level — 75, on a scale of 0 to 100 — it hasn't hit since April 2020. Why it matters: Reaching the 75th percentile on the scale is considered a "critical zone" of credit stress. In the past, it's coincided with significant market dysfunction, says Oleg Melentyev, credit strategist at BofA. When markets aren't functioning smoothly, big price swings — and investor losses — are more likely. And companies have a harder time accessing capital. How it works: The CSI measures stress in U.S. credit markets, focusing mostly on high-yield bonds (the riskiest segment with the lowest credit ratings), and looking at components like distress, volatility and access to funding. Meanwhile, an index of Treasury market volatility is just shy of its COVID high; and one index of investment-grade bond market distress is at June 2020 levels. The bottom line: Rates are rising rapidly — with no end in sight — and recession expectations are mounting. Credit stress is unlikely to recede any time soon.     A message from GLOBAL X ETFS Build a greener investment portfolio     Government policies and private sector commitments to combat climate change are driving demand for more sustainable buildings. We recently explored the long-term investment case for companies involved in the development, management and technology powering green buildings. Learn more.   🎤 Join Axios BFD virtually on Wednesday, Oct. 26 ... Register to livestream interviews with Mark Cuban, NYSE president Lynn Martin, ESPN chair James Pitaro and more. Was this email forwarded to you? Sign up here! Today's newsletter was edited by Kate Marino and copy edited by Mickey Meece. Why stop here? Let's go Pro. 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