“Baby boomers” have been America’s secret weapon to avoid recession

“More importantly, the baby boom generation is starting to retire with a record net worth of $76 trillion,” he wrote for the Financial Times. “They are spending on restaurants, cruises, travel and health care. All of these service industries have expanded their payrolls, thereby increasing real incomes and spurring more spending.”

This contradicts gloomy expectations for an imminent slowdown in consumption, which has been the basis for reasoning that the economy will eventually tighten.

Instead, only the goods sector has shown signs of a growth recession, Yardeni said. But that’s after the lockout shopping spree; today, spending on goods remains at a record high when adjusted for inflation.

It’s a fresh take on what the post-war generation can offer, given that retirees are often cited as a source of economic strain for young people. With 4.1 million produced annually by 2027, some fear it will weigh on everything from stocks to the job market.

But for Yardeni, they’re the reason there hasn’t been a consumer recession in the past two years, he wrote separately in April:

“The Baby Boomers watched a lot of Star Trek during the 1960s. They certainly took Spock’s mantra to heart.’Live long and prosper.’ He should have finished the thought with ‘Then withdraw and spend it all before the expiry date.’

Pensioner spending is one of the many recession-defying factors Yarden listed in the FT.

According to him, analysts were right to initially expect a decline, given the Federal Reserve’s aggressive hiking cycle and the bright recession indicators.

But the problems usually caused by tight monetary policy, such as a credit crunch and speculative bubble, have been largely overcome. As a banking crisis emerged last year, the Fed’s emergency response was sufficient to suppress the credit fallout.

Moreover, higher rates actually strengthened consumer elasticity, as households accumulated higher returns on bank deposits and money market funds.

Meanwhile, the baby-boomer focus on utility spending can also skew indicators, making things look bleaker than they are.

“And what about the Leading Economic Indicators Index?” Yardeni said. “It hasn’t worked that well because it’s too skewed towards the goods economy, which has been relatively weak, and doesn’t give enough weight to the services sector, which has been strong.”

Correction: May 22, 2024 An earlier version of this story misstated the net worth of baby boomers. Ed Yarden said boomers are retiring with $76 trillion in net worth, not $76 billion.