The Consumer Megatrend
By Benjamin Sherry | February 24, 2022
Many economists in the banking industry predict a “consumer megatrend”: strong financial capacity to spend among millenials as they enter higher earning and spending years. Why? First, the U.S. consumer has seen an increase in wages exceeding the pre-covid trend line, especially in the private sector (See Exhibit 2). Therefore, coupled with the stimulus packages, consumers have spent more on goods and services. Second, given the skyrocketing housing market and index funds, total net worth for individuals has reached a new high at 142 trillion which bodes well for the future (See Exhibit 3). Economists are calling this the “wealth effect”: an increase in the aggregate level of wealth and rate of change. Houses are valuable now due to pent up demand for houses and little supply because of a lack of building activity (See Exhibit 8). Since the 2008 financial crisis, it has been difficult to persuade contractors to build new homes, yet there are signs of recovery. Third, millennials are becoming the largest cohort of the population and will make up the majority of consumer spending as baby boomers decrease in size (See Exhibit 5). Interestingly enough, millennials have shown a strong emphasis on experiences over things (See Exhibit 6). For example, a group of individuals are much more likely to plan a vacation trip rather than buy a new TV, video games, or furniture. This bodes well for recovery of the airline industry and will hopefully help underdeveloped countries such as Jamaica whose tourism industry accounts for more than 25% of GDP. There is one exception to this rule: apparel. There is a dramatic push for apparel for those aged between 35-44, but decreasing sharply for those under 25 and over 65 (See Exhibit 7). Companies with strong social media presence and online retail capacities such as Nike, Shopify, Amazon, and Lululemon have capitalized on this select group of consumers.
However, the consumer megatrend is not without its flaws. Wage increases have increased sharply for the college educated, but have decreased for those without a college degree. This can possibly lead to a collapse from the bottom up. Inflation has greatly exaggerated the wage increases, housing prices, and has led to an increase in many consumer products. The Federal Reserve is predicted to raise interest rates four times this year, with the first hikes coming in March. In a no win situation, consumers are going to stop spending money because prices are rising or stop taking out loans since interest rates are too high. Furthermore, another element to consider is the unsolved supply chain crisis under the Biden Administration. As a final point, travel is only likely to rebound if covid restrictions lessen as omicron cases decrease across the country.
Will the consumer megatrend hold or will there be a housing and consumer spending crash? In such unpredictable times and with so many factors, it is hard to tell.
Edited by Maggie Reddington