Economic fun house

There were about four million children born each year in the US during the 1950s, as opposed to just 24 million in the decade of the 1930s. Throughout their lifetimes, the Boomers (those born 1946-1964) have left an outsized imprint upon society, stretching the capacity of schools, colleges, and neighborhoods.

Beyond their sheer size what really distinguishes the Baby Boom generation is their unprecedented wealth. Boomers experienced what can accurately be described as a perfect storm of having entered prime savings and asset-accumulating years in a period when monetary and fiscal policy reacted with historic aggression to consecutive crises, namely, the Global Financial Crisis and Covid. These were painful episodes, but they led to rapid appreciation of asset prices. The resulting boost to household net worth left Boomers, with 19% of the US population but 51% of its wealth (an astounding $90 trillion per Federal Reserve data), as the richest generation in history. 

We tend to think of the population as relatively evenly distributed, but the Boomers cause many intuitive assumptions to crumble. This is particularly true now, as they are exiting the workforce. There are a number of ways that Boomers and their finances upend conventional interpretations of the economy. Failure to consider their influence in some cases is causing market participants to reach pessimistic conclusions. Many of these generational effects are almost like optical illusions, where the ordinary way of seeing something turns out to be misleading.

Working and saving

Labor force growth is falling year-over-year, which is unusual during an economic expansion. Some of this, of course, results from a sharp reversal in immigration under the Trump administration, but a large share is from more Boomers retiring than new entrants joining. Boomers are between 62 and 80 and are now leaving the workforce at a pace of about four million annually.

What do workers do ahead of retiring? They save. Boomers, however, have already saved and are now busy spending. As they ride off into the sunset, they earn less but their spending is going strong thanks to their accumulated assets. This creates a distortion in the savings rate. Some incorrectly suppose that today’s low savings rate means the consumer is stretched; in large part, however, it just shows Boomers living as well-off retirees.

Wage income is perceived to be declining, causing many to fear for the future of a consumer-driven economy. In reality, though, some portion of the decline results from the shift of high-income Boomers leaving the workforce and being replaced by lower-pay new entrants.

Big empty nests

The housing market has suffered some pretty severe distortions lately. Much of this, of course, is due to the whipsaw seen in mortgage rates as the Fed struggled to get inflation under control. Some of the freeze in housing has to do with the Boomers, however. For one thing, they have been choosing to age in place and are slower to move out of their primary residence than previous generations. Furthermore, multiple years of price appreciation have left Boomer McMansions incompatible with first-time buyers’ needs and budget.

I’m OK, you’re OK

We hear a lot lately about the K-shaped economy, whereby the haves are doing ever better while the have nots get left further and further behind. At least some of this distinction is generational, however. As a group, Boomers, with their disproportionate ownership of housing and equities are solidly in the upper leg of the K.

Social Security is also treating the generation well. Boomers at this point are far outliving the actuarial assumptions originally factored into Social Security; because of this miscalculation, they are receiving more than they contributed, further solidifying Boomer finances.

Implications for the future

Several themes look solid for the longer term:

• Services The overarching theme is services, in which demand is steady as a rock. Boomers have acquired all the goods they need; service demand has only grown over time, however, supporting the whole economy.
• Health care Seen from the lens of the outsized Boomer cohort, it’s not surprising that demand for health care workers is surging. Some have suggested that recent employment growth is somehow weak because much of it is in health care. Well, it should be! This is just supply meeting surging demand.
• Travel Boomers are wealthy and still healthy. Are they on the Marrakesh Express? Maybe, maybe not, but travel feels like a durable theme.
• Senior housing Even if (as noted above) there is some generational reluctance, sheer numbers and longer lifespans are driving a huge “Silver Tsunami” of demand for senior housing.