The Surprising Economic Consequences of Owning a Pet

Man's best friend is quickly becoming America's hairy stepchild.

And although this shift is good news for the pet supply industry, it also may have some frightening long-term economic consequences -- ones that are currently playing out in other pet-obsessed countries.

Spending on our furry friends
The pet market in America is massive. All told, $53.33 billion was spent on purchasing, feeding, medicating, caring for, boarding, and grooming pets last year alone, according to the American Pet Products Association. This total has doubled since the late '90s, despite two recessions.

The following publicly traded companies have, no doubt, noticed as this growing trend has played out in their improving financials. With the exception of one company, investors have also taken notice:

Company

What It Does

5-Year Earnings Compounded Annual Growth*

1-Year Earnings Compounded Annual Growth*

5-Year Stock Return

PetMed Express (NASDAQ: PETS  )

Runs 1-800-PetsMeds, a pharmacy for pets.

(2.4%)

3.5%

10.3%

Central Garden & Pet (NASDAQ: CENT  )

Produces pet supplies, such as edible bones, collars, and leashes.

(10.1%)

9.7%

64.4%

VCA Antech (NASDAQ: WOOF  )

Provides veterinary services and diagnostics.

(0.8%)

0.2%

(1.1%)

PetSmart (NASDAQ: PETM  )

Operates the retail stores that sell pet supplies and food.

14.8%

28.1%

254.9%

All data from S&P Capital IQ. Returns from Google Finance .
*Based on normalized earnings.

But what's perhaps even more shocking, pets now outnumber children 4-to-1 in America, according to Jonathan Last in his new book, What to Expect When No One's Expecting. Commenting on this statistic, he writes, "the evidence suggests that pets are increasingly treated like actual family members."

He backs his statement up with the bizarre -- but completely true -- reality that auto insurance companies offer add-on policies for when pets are traveling in your car, and that a recent Congressional bill proposed that citizens receive a $3,500 tax break for pet-care expenses.

What happens when pets outnumber kids?
Look no further than Japan and Italy (two countries similarly obsessed with pets) to see what can happen when pets are more prevalent than children: The fertility rate drops. 

Japan and Italy both have fertility rates of 1.4, according to the CIA's World Factbook. That's well below the "replacement level" of 2.1 necessary to maintain a steady population.

This low fertility rate eventually forces tough policy decisions. With no extended family to help care for aging parents, adult children become increasingly in need of governmental help (an issue China will similarly face because of its one-child policy). Unfortunately, this help is sought just as the tax base begins to decline because of the shrinking population of workers.

A smaller number of workers attempting to care for a larger number of elderly? Sounds like the situation we're facing right now with Social Security and Medicare.

The only solutions are either an increase in taxes or a decrease in benefits -- neither of which is easy to stomach, and both of which have consequences of their own.

So, no more pets?
Of course, this doesn't mean Americans should abandon pets.

Jonathan Last does acknowledge that the decline in the fertility rate (in America, Japan, and Italy) can't be attributed solely to a rising fondness for pets. It's an instance of correlation, not direct causation.

But the correlation is interesting, nevertheless -- and a fascinating, fresh way to spark much-needed conversation and debate about what Last calls America's "unspoken one-child policy."

If you do own pets, there's a good chance that, like me, you're part of "the 99%." A free report I recently wrote highlights three less-than-luxurious stocks the 1% may be overlooking. Simply click here to read it now.


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