The Baby Bust

Smart journalists should never mistake a single data point for a meaningful development. Data isn't the plural of anecdote, as the saying goes. But every so often you have to go with your gut. And so I'm suggesting—not declaring—that the recent results from Pediatrix Medical Group may indicate that the slower economy is causing a decline in births.

Pediatrix owns group practices of neonatal specialists and employs 1,070 physicians and 400 nurse practitioners in 32 states and Puerto Rico. Its teams staff some 257 neonatal intensive care units, about one-sixth of the nation's total. Pediatrix has a market capitalization of $2.5 billion. (Here's the company's history and its 2007 annual report.) The company says that about 12 percent of births require NICU admissions. By my back-of-the-envelope calculations, Pediatrix winds up caring for about 2 percent of the babies born in the United States each year.

In recent years, the birthing industry and Pediatrix have been on a roll. According to the National Center for Health Statistics, births rose 1 percent in 2005 and another 3 percent in 2006 to 4.265 million, the highest number of births since at least 1960. (Page 3 of this portion of the statistical abstract of the United States has birth data going back to 1960.) As the Washington Postreported, in 2006 the U.S. fertility rate rose to 2.1 babies per woman—a rate "high enough to sustain a stable population"—for the first time since 1971. The rising number of newborns has meant more business for Pediatrix, whose stock has doubled in the last five years. While government data aren't available, it seems that 2007 was another good year for births. The company reported that in the 2007 fourth quarter, same-unit volume at its NICUs rose 4 percent from the 2006 fourth quarter.

But this year, things are going poorly for Pediatrix. And that suggests one of two things: 1) Either significantly more babies are being born without need of neonatal care or 2) as the housing slump began to take a bite out of economic growth last year, Americans began to cut back on their fruitful reproductive activity. "Our results are being affected by lower neonatal volume, which is related to a lower rate of growth of births at our hospitals throughout this year," said Dr. Roger J. Medel, chief executive officer of Pediatrix, when Pediatrix reported its 2008 first-quarter results on May 8. Factoring out the extra day in February for the leap year, same-unit NICU patient volume for the 2008 first quarter grew by only 0.7 percent from the 2007 first quarter—well below the 3 percent to 5 percent growth rate the company was expecting for all of 2008. On Tuesday, the company announced it would scale back expectations for the second quarter and the whole year. Why? "Through the first six weeks of the 2008 second quarter Pediatrix's same-unit NICU volume declined by approximately 2 percent when compared to the same period of 2007." In other words, the expected volume of April and May babies, who would have been conceived amid the credit crunch of last July and August, hasn't materialized. Pediatrix's stock (here's the one-year price chart) is off almost 30 percent in the past month.

Pediatrix's numbers may have declined because the hospitals it works with are losing market share. But it could also be that in the areas that Pediatrix serves, people are feeling less inclined to have children. The company generates more than half its revenue in five states—Arizona, California, Florida, Texas, and Washington—with Texas alone accounting for 28 percent. The economies of the first three have been hit especially hard by the housing meltdown. Florida Hospital Orlando, the flagship of the state's biggest hospital system, saw 227 births in April, compared with 263 in April 2007, a decrease of 13.6 percent.

It's hard to isolate the effect of the economy on the rate of child birth since so many other factors (immigration, demographic trends, birth-control use) come into play. But the macroeconomic climate definitely has an impact. Many couples, including my paternal grandparents, waited out the Depression before having children. According to the U.S. Census, both the number of births and the birth rate fell sharply during the Depression, from 2.9 million and 25.1 per 1,000 people in 1925 to 2.618 million and 21.3 per 1,000 in 1930, and to 2.377 million and 18.7 per 1,000 in 1935. A big baby bust preceded the Baby Boom. 2001 and 2002—the years in which babies conceived during the last recession were delivered—were the only two years in the decade from 1997-2006 in which the number of births fell.

For many parents, the decision to have a child is an emotional choice, a biological imperative, or a fulfillment of a religious obligation—and hence one in which dollars and cents don't matter. But for some prospective parents, and certainly for many of those at the margin, concern over whether they can afford to support an additional child or start having children can influence the decision to procreate. And it's a safe bet that as the credit-market and housing tremors shook the economy, as the pace of job creation began to ebb and inflation rose, some people who were on the fence last summer decided to wait. Babies, like corporate earnings, are a lagging indicator. After all, they're produced nine months before they arrive in the marketplace. When Pediatrix reports its second-quarter earnings in August, we'll know whether this single data point is growing from its embryonic stage into a bouncing baby trend.