A Demographic Reality That the Economy Can’t Escape

by Mitchell Clark, B. Comm.

The consumer is considered king in this economy and, as much as people in retail are saying that consumer behavior has changed fundamentally, demand for goods will return to previous levels commensurate with the employment rate. That is, of course, until the baby boomers retire. After that, all bets are off.

We’re at a crossroads of sorts in that the most happy-go-lucky, biggest spending demographic in Western history is about to consider retirement. This will have both positive and negative effects on the economy. The good news is that, in spite of the recent financial crisis, a lot of baby boomers have a decent nest egg to play with. The bad news is that this nest egg is finite and a lot of previous big spenders are now going to become spendthrifts. Because of this demographic reality, we are about to enter uncharted territory in terms of consumer demand for goods. This means that the economy as we knew it before is likely to be transformed into a new model that no one is expecting. The only saving grace will be population growth, which is predicted to be quite solid over the next several decades
From the financial industry’s perspective, you can imagine that demand for income-producing products will skyrocket over the coming years. And we might just find that consumers’ affinity for mutual funds will erode. The future is always anyone’s guess, but I think that there is going to be a fundamental sea change in the way the baby boomers invest and this doesn’t bode well for Wall Street.

When retirement becomes a serious reality for people, enthusiasm for speculative investments drops. This implies that there will be a much smaller pool of individual investor dollars available to be allocated to equity investments. So, if retiring baby boomers are more concerned about income, and less concerned about speculating in growth stocks, where will their attention turn to? In my view, the answer lies with real estate, not paper estate in the secondary market  (i.e. the stock market).

A revolution in the real estate market is in the makings and it lies with retiring baby boomers. This trend has the potential to further upset the current real estate industry, which is focused on the suburbs. We just might get a resurgence in downtown residential neighborhoods, as baby boomers sell their large family homes. At the same time, smaller recreational communities should experience new demand for housing, as baby boomers choose to abandon their previous family homes for new digs on the water.

A lot of new trends are coming down the pipeline. One thing I know for certain is that the baby boomer generation has always made its needs known over and above any other demographic in the marketplace. As their consumption patterns change, so will the rest of the economy. Perhaps retailers are right. The days of consumer excess are over.