Boost in Divorces Boosts Economy

The number of Americans getting divorced rose for the third year in a row to about 2.4 million in 2012, after plunging in the 18-month recession ended June 2009, according to U.S. Census Bureau data. Whatever the social and emotional impact, the broad economic effects of the increase are clear: It is contributing to the formation of new households, boosting demand for housing, appliances and furnishings and spurring the economy. Divorces are also prompting more women to enter the labor force.

“As the economy normalizes, so too do family dynamics,” said Mark Zandi, chief economist at Moody’s Analytics Inc. in West Chester, Pennsylvania. “Birth rates and divorce rates are rising. We may even see them rise strongly in the next couple of years, as households who put off these life-changing events decide to act.”

40-Year Low

Divorces were at a 40-year low in 2009, according to Jessamyn Schaller, an economics professor at the University of Arizona in Tucson, citing data from the federal government’s National Center for Health Statistics. The divorce rate more than doubled between 1940 and 1981 before falling a third by 2009, according to figures from NCHS, based in Hyattsville, Maryland.

The rise in divorces has coincided with an increase in household formation. Almost 5.3 million households have been formed in the past four years after the figure slumped to fewer than 400,000 in 2009, according to the Census Bureau. That is bolstering the need for apartments, condos and furnishings.

“Separations and divorce often create additional housing demand by creating two households when there was one,” said David Crowe, chief economist at the National Association of Home Builders in Washington.

Construction Rebound

That has contributed to the rebound in home construction. Housing starts surged 67 percent to 923,400 in 2013 from 2009, according to Commerce Department data. Multifamily housing starts have almost tripled since the recession and accounted for 33 percent of residential construction in 2013, up from 20 percent in 2009.

Newly single men have been renting apartments in suburban markets as they seek to stay close to their children and attend school events, said Gregory Mutz, AMLI Residential Properties Trust chief executive officer. The Chicago-based company develops and acquires luxury apartments in the U.S.

“In unhappy marriages, they have started having the macroeconomic ability to unwind,” he said. That is creating “a little bit of a tailwind” for apartments.

About 150,000 divorces were postponed or avoided between 2009 and 2011, said Philip Cohen, a sociology professor at the University of Maryland in College Park who linked breakups to the economic cycle in a January 2014 paper.
Unemployment Tie

Both marriages and dissolutions are tied to unemployment, University of Arizona’s Schaller found in a May 2012 paper. Each one percentage point increase in the jobless rate is associated with a 1.5 percent decrease in the marriage rate and 1.7 percent drop in the divorce rate, she calculated.

Unemployment slid to a five-year low of 6.6 percent in January from 10 percent in October 2009. Home prices increased 22 percent in third quarter of last year compared with the first quarter of 2012, partially recovering a 35 percent drop from 2006’s second quarter, according to the S&P Case-Shiller U.S. Home Price index.
Story: Goldman: Corporate Profits Grew Five Times Faster Than Wages in 2013

Rising stock and home prices are giving couples greater financial security. Household net worth for the third quarter last year was more than $8 trillion above its pre-recession peak of $69 trillion reached in same period in 2007, data from the Federal Reserve showed in December.

Credit: Steve Matthews, Bloomberg news: http://www.businessweek.com/news/2014-02-18/worsening-u-dot-s-dot-divorce-rate-points-to-improving-economy

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