Perhaps the most important driver of new consumer spending, and thus economic growth, will occur as young millennials decide to settle down, buy a house and start producing children.
Millennials May Yet Save Our Economic Bacon
But If Economic Growth Is Going to Pick up, We Need Them to Start Acting More Like Boomers
But as we have been told over and over again, millennials have been very slow out of the gate. Evidence suggests that too many of them are up to their eyeballs in student debt and a great many more are being grossly underpaid compared to their predecessors, if they have a job at all. And over 10 million of them are still living with their parents, which does not exactly encourage procreation.
If our nation's exceedingly slow economic growth is ever going to pick up, we need these millennials to start acting more like baby boomers. After all, they outnumber them -- the 2010 Census found 85 million millennials and only 79 million baby boomers. And in any case, the nation certainly can't depend on boomers to spend like they used to. As they edge ever closer to the magic age of 65, boomers are telling pollsters they're scared witless they will run out of their skimpy savings long before their time on this earth is up. At the same time, many are also draining income and savings as they help support their slow-starting millennial kids.
So, what are the prospects for millennials pulling our economy out of the doldrums? Well in 2015, just three years from now, millennials will all be adults and will be approximately 20 to 39 years old -- prime child-bearing and home-buying years.
The latest data from the National Center for Health Statistics tells us that in 2010 women in the age range 20 to 39 produced 88% of the four million children born in the US that year. Since the recession started, the total number of births has declined 7.3% from 4.3 million in 2007 to 4.0 million in 2010. If total births return to pre-recession levels over the next three years, it will only be because millions of millennials will feel financially secure enough to start a family.
In the first year of a child's life, busy parents and free-spending grandparents will probably spend an average of $15,000 to $20,000 on a vast array of stuff, particularly if the baby is either a first child or the first baby girl.
Every 100,000 babies above the 2010 base of 4 million will add $1.5 to $2 billion in annual consumer spending. New mothers are the real job creators in this country.
I project that between 2012 and 2015, millions of millennials will be leaving their parents' homes and in a burst of breeding will make an average of at least 250,000 more babies in each of those three years. Ben Bernanke just might break into song.
When they do leave home, millennials will form their own households and either rent something or buy a home. But when young adults start having children, they inevitably want their own home. There's no better motivation for a young couple to buy their first home than to make a nice nest for their newborn. Perhaps the most important byproduct of more children is increasing demand for owned homes.
The Census Bureau reports that in the third quarter of 2011, only about one-third (34%) of millennial households ages 25 to 29 were homeowners, but that figure rises to 50% for those ages 30 to 34, and 59% for households ages 35 to 39. Five years ago each of those percentages were six to seven points higher.
But even if millennials just maintain their present historically low homeownership rates, it will mean that when the approximately nine million millennial households now ages 25 to 29 and the ten million households ages 30 to 34 become 30 to 39, they will buy at least two million homes between now and 2015, and in the process create a small explosion of consumer spending.
According to the Bureau of Labor Statistics 2010 Consumer Expenditure Survey, when households that are ages 25 to 34 become 35 to 44 year old households, their spending on owned homes jumps 59% to an average of $8,149 per household per year. Multiplying that by two million new homeowners creates a conservative estimate of an additional $16.3 billion in additional economic activity annually.
The combination of millennials leaving their parent's home, then producing what their parents want most -- grandchildren -- and simultaneously buying a home might just be the high-voltage heart paddle that brings the nation's housing market back to life and the rest of the economy with it.
These brash predictions must, of course, be tempered with a few caveats. Millennials' high unemployment rates are well known, as are their reduced wages compared to their predecessors. Also, Hispanics, who in the recent past have played a major role in the growth of young families and new homeowners, may not be in much of a mood to participate in the American dream until the harsh anti-immigrant rhetoric subsides.
However, optimists such as myself continue to believe that the all-powerful primal human desire to have a home and produce children will prevail over whatever economic and political obstacles stand in the way.
Peter Francese is demographic trends analyst at Ogilvy & Mather, New York, and founder of American Demographics magazine.