America’s New Old 55 plus are now 38% of consumer spending

US spend 2013Maybe the concept that spending is related to age and income is just too simple for policy makers to understand?  Could that be the reason why they insist on continuing to try to stimulate demand, despite the fact that Western and many other populations are now ageing fast?

That was the blog’s thought on studying newly released data on US consumer spending from the US Bureau of Labor Statistics, as summarised in the above chart:

  • The Bureau tracks spending by age range amongst the 125m US households
  • It then presents the data via 7 different age groups, ranging from under-25 to 75+
  • Falling fertility rates and increasing life expectancy mean there are only 8m of the former, but 12m of the latter

This data then makes it possible to calculate total spend in $bns by each age group.  This is critical data for economic growth, as consumer spending is 71% of GDP

The result is very much what common sense would have led us to expect:

  • Spending picks up in the 25-34 age range to average $50k per household
  • It jumps to $59k per household for those in the 35 – 44 age group
  • Spend then peaks in the 45 – 54 age group at $61k, before declining to $56k  for those aged 55-64
  • By 65, spending has dropped to $46k, and is down to just $35k by 74 years – just 56% of peak spend

We can thus easily divide spending patterns into the Wealth Creators aged 25 – 54, and the New Old 55 plus.

There are currently 66m households in the Wealth Creator category spending $3.8tn a year.  There are also 51m households in the New Old 55 plus age group, spending $2.4tn.  In total, the Wealth Creators account for 59% of spending, and the New Old 38%, with the under-25s spending the remaining 3%.

Of course, this pattern is completely different from even 60 years ago, as the blog discussed back in December.  Then the BabyBoom was just ending and life expectancy was much lower.  Thus fertility rates have since halved from 3.7 babies/woman to just 1.8 babies today, whilst average life expectancy is nearly 80 years.

We can see the effect of these changes in the total number of households in each age bracket:

  • There are only 27m in the 65+ age group, compared with 23m in just the 55-64 bracket
  • Similarly, there are 25m in the 45 – 54 bracket, but only 21m in each of the 35 – 44 and 25 – 34 age groups

And one thing we know for certain is that, even if American women suddenly decided to start having large numbers of babies again, it would take 25 years before these were old enough to join the Wealth Creator category.

Perhaps someone cleverer than the blog can explain why the US Federal Reserve and other policymakers choose to ignore this type of data?  Do they somehow think that printing more money can magically create more babies AND hasten their progress to adulthood?  Surely not?

Or do they think that low interest rates will somehow encourage older people to spend more?  It would seem obvious that they are instead likely to spend less, on the basis that their lifetime savings are now less able to provide the income they had expected to sustain them in retirement?

Given that consumer spending is 71% of total US GDP, the data in this chart essentially therefore all we really need to guide us on the likely outlook for the US economy.

The good news, of course, is that companies are starting to wake up to the inevitability of today’s move into this New Normal.  Sadly, though, it is still rare to find businesses actually targeting the New Old, in the way they would naturally target Wealth Creators or teenagers.

But Boards are increasingly getting the message that the New Old are the only growth market in town.  That at least is a start.  And if they ask their colleagues to examine the very detailed spending data provided by the Bureau, they would be sure to find a large number of attractive opportunities to target.

 

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. The aim of this blog is to share ideas about the influences that may shape the chemical industry over the next 12 – 18 months. It will try to look behind today’s headlines, to understand what may happen next in important issues such oil prices, economic growth and the environment. We may also have some fun, investigating a few of the more offbeat events that take place from time to time. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.

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