There is an interesting development that has begun of late to get attention in the investment world as it relates to long-term American consumption trends.
Grizzle.com's Chris Woods explains in his latest notes that 'millennials' - defined as people aged between 17 and 35 (or born from 1982 to 2000) - are now larger (85 million) than the baby boomers (73.8 million)- defined as those born between 1946 and 1964 - according to the U.S. Census Bureau’s population estimates.
This is good news for some, and bad news for others.
As Woods notes, the good news is that the growth of millennials may raise the potential for an inflection point in the relatively weak consumption trend, which has been a feature of the American economy since the 2008 financial crisis as savings rates have risen.
Thanks to a sharp decline in the U.S. homeownership rate, a decline which by the way has now seemingly reversed.
The sharp decline in the U.S. labour participation rate of young people.
Real median household income for older millennials defined as aged 25 to 34 has turned higher.
And while they do carry a lot of debt, Woods argue that the student loan trend is not quite as disastrous as the gross number would suggest, namely US$1.36 trillion with a formal delinquency rate of 11.2%. The overall situation is not so grim because millennials otherwise do not carry much debt, if any, because no one would lend to them after the global financial crisis.
Clearly demographics drive long-term trends. So, Woods concludes, these are potentially huge developments in what is for now still the world’s largest economy.
And here is the bad news (if he's right)...
If U.S. growth really does recover in the manner the cyclical optimists are now expecting, by which is meant 3-4% growth compared with the average annualized U.S. real GDP growth of 2.2% since mid-2009, it will not be positive for financial assets because there will be a massive monetary tightening scare triggered by increased inflation concerns.