Did the Tooth Fairy Predict the Recent Market Dip?

Delta Dental's annual survey is an early indicator of consumer confidence

Is it possible the tooth fairy predict recent market volatility?

The tooth fairy was a bit frugal in 2017, the average payout dropped 11 percent. Why such a significant drop when the economy is supposedly the healthiest it has been in the last decade and wages are rising? Can the tooth fairy be telling us something more about the economy and real estate? 

WHAT IS THE TOOTH FAIRY SURVEY?

Since 1998, Delta Dental has annually conducted its Original Tooth Fairy Poll to gauge how generous the mythical creature had been the year prior. The poll tallies the collective tooth fairy's average giving and compares it to stock market activity to illustrate how the value of a lost tooth relates to the U.S. economy.

More than 1,000 primary caregivers were surveyed via email. The sample was designed to capture a broad spectrum of the U.S. population, not just those with dental insurance.

Don't get me wrong: This survey is not the most scientific measure, but from personal experience, I have two children of teeth-losing age, and the tooth fairy amounts are dead on. In Colorado (there are regional nuances), the tooth fairy gives an average of $4 to $5 per tooth. When our kid lost her first tooth, we did an unofficial parent poll to see what the mean was. It's crazy to think that when I was a kid, we got $0.50.

WHO CARES ABOUT A SURVEY ABOUT FICTIONAL FAIRIES?

Before totally dismissing this survey, look at the graph below.

There was a noticeable decline in 2005-2006. Why, might you ask?

The economy was doing great, real estate prices were up, yet the tooth fairy index declined. Fast-forward a year and the economy took a substantial nosedive, real estate tanked, and the S&P 500 declined.

This was the beginning of one of the biggest recessions in U.S. history.

HOW CAN SHE READ THE ECONOMY?

The tooth fairy survey is not merely measuring the amount of money parents give their kids – It has a deeper meaning. It is an early indicator of consumer confidence. Consumer confidence is one of the greatest drivers of economic prosperity, and despair. When consumers are happy, they spend more – on goods, services, real estate, and yes, even on make-believe characters who gift their children. The inverse is also true: As consumer confidence wanes, disposable items are the first to be cut from the budget. 

The tooth fairy survey is more than just a stagnant study of consumer confidence. It could be a leading indicator of economic conditions. For example, look at 2011. The survey started picking up and took off, almost doubling four years later. Shortly thereafter, the S&P 500 started heading to noticeably higher heights after 2011. 

Real estate during this time also improved and increased.

Did the tooth fairy index accurately predict the positive economic conditions that drove the market to new highs? Can the tooth fairy index also predict the inverse?

Fast-forward 10 years, the economy is back on solid footing and recovering from the Great Recession; yet the tooth fairy index falls. This sounds eerily familiar right before the last correction. Is she trying to tell us something? Is this a leading indicator or a repeat of 2008?

Although it sounds crazy to give any weight to a survey on fairies, it is most definitely a predictor of consumer confidence. 

According to the Federal Reserve, consumers account for 70 percent of gross domestic product and are the largest drivers for the U.S. economy. How a person feels and acts will be the greatest predictor of economic prosperity or hardship. The tooth fairy survey is on to something by tracking consumer sentiments. 

Categories: Economy/Politics