The U.S. Economy's Hidden Strength

Consumer spending has remained remarkably resilient despite the Federal Reserve's efforts to raise interest rates. An often overlooked but significant factor contributing to this resilience is the ageing population.

  • As of August, a record-breaking 17.7% of the U.S. population was aged 65 or older, according to the Census Bureau, a substantial increase from the 13% reported in 2010.
  • What sets these seniors apart is not just their growing numbers but also their strong financial stability. They are less reliant on borrowing, such as mortgages, and are less vulnerable to job market fluctuations compared to younger consumers.

This demographic shift has turned seniors into a formidable force in the consumer spending landscape. Last year, Americans aged 65 and above accounted for a staggering 22% of total consumer spending, the highest percentage since data collection began in 1972, and a significant increase from the 15% reported in 2010, according to the Labor Department's consumer expenditure survey released in September.

Less Sensitive To Rates

Susan Sterne, chief economist at Economic Analysis Associates, emphasizes the importance of this demographic in the current economic landscape, saying that these are the consumers that will matter over the coming year. A large share of older consumers provides a consumption base in times like today when job growth slows, interest rates rise, and student debt repayments loom.

  • The high spending tendencies among seniors can be attributed to a combination of factors, including improved health, financial security, and perhaps even the lingering psychological effects of the pandemic.
  • Marshal Cohen, chief retail adviser of Circana, a consumer behavior research firm, notes that today's seniors are more active than ever, engaging in activities such as e-biking, hiking, and extensive travel. This newfound vitality has expanded their choices for recreational spending.

Increased Spending

According to the Labor Department, households led by individuals aged 65 and older increased their spending by 2.7% last year, adjusted for inflation, compared to a meager 0.7% growth for those under 65. This trend has been consistent since 1982, with spending by older households growing by 34.5%, compared to 16.5% for younger households.

  • While 2023 data is not available, a New York Fed survey reported a 7.9% spending increase among consumers over 60 in August compared to the previous year, outpacing younger age groups.
  • This surge in senior spending is magnified by the sheer size of the baby boomer generation, with the youngest members now reaching age 59.
  • Companies catering to older consumers, such as American Cruise Lines, are experiencing double-digit sales growth, prompting expansion and investment in longer cruise experiences.

Better Financial Strength

The financial strength of seniors is another critical factor. Americans aged 70 and older hold nearly 26% of household wealth, a record high since 1989, according to the Federal Reserve. They have lower consumer debt, limited student debt, and are more likely to own their homes outright. Additionally, many took advantage of historically low mortgage rates during the pandemic.

  • Retirees have also benefited from significant cost-of-living adjustments to Social Security payments, cushioning them against the impact of rising inflation.
  • Their spending habits are less susceptible to the unemployment concerns that economists anticipate for younger demographics in the coming quarters.

In summary, seniors have become an economic powerhouse, with their substantial numbers, robust financial stability, and newfound appetite for spending contributing significantly to the resilience of the U.S. economy. This demographic shift is reshaping consumer trends and business strategies, as companies recognize the value of catering to this influential and prosperous group.


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