Stat of the Day: The Need for a New Baby Boom

How Ties Between the Birth Rate and the Economy Don't Help Us

By Published on .

Who is going to pull us out of this recession? The American consumer? Yeah, sure. Depending on who is doing the talking, we are told that American consumers are mostly underwater homeowners who are also up to their eyeballs in credit card debt. And oh yes, they're in a bad mood too.

The problem with this discussion is that there is no such thing as the "American consumer" and making generalizations about their mood or their financial situation does not contribute to understanding present economic conditions.

The reality is that our nation is a collection of consumer segments that are occasionally related, but have very different spending capabilities and motivations. Many U.S. households are in fact underwater on their home mortgage and are just trying to get by on recession-limited earnings. They have virtually no prospects for increasing their spending in the near future.

But despite the gloomy stories about tapped-out consumers, there are a couple of consumer segments that if they increase their spending just might provide the U.S. economy with enough lift for to rise of its slump. Here are my two candidates for the consumers who, if they work together, could become the figurative cavalry riding in at the last minute to rescue our economy.

Candidate No. 1 is the affluent baby boomer. According to the Census Bureau the 46 million baby boomer households aged 45 to 64 annually receive close to half (47%) of all U.S. consumer income, which adds up to around $4 trillion. Affluent baby boomers are the majority (57%) of the top 5% income households in the nation that each take home an average of $306,000 a year.

The minimum household income required to get admitted into this top 5% club is $180,000 a year, which is 3.6 times the $50,000 median income of all U.S. households. But according to the Bureau of Labor Statistics these top income households spend less than two-thirds of their rather large annual income.

Perhaps we should ask what would motivate them to spend, say another 10% of their income. (That would juice the economy with between $300 billion and $400 billion of consumer spending.) Merely appealing to their patriotism, which worked so well right after 9/11, probably won't do it now.

It would have to be an emotional pitch like, "Do it for your grandchildren." But there's a problem with that . Where are the grandkids?

According to the National Center for Health Statistics U.S. "fertility rates fell more rapidly from 2007 through 2009 than for any two-year period in more than 30 years." And they further report that the sharpest declines were among women aged 20 to 34.

Millennial women haven't been having kids at the same rates as previous generation. As a group they are staying in school, living with their parents and/or their unmarried partners -- all in record numbers. They are delaying these life stages. This partially reflects poor economic realities, and changing attitudes toward parenting, which remains an important but shifting priority for the generation

It would take an additional 200,000 or so children in the next year just to return millennial women to the 2007 birthrates for their age group. But that would create an explosion of spending on child-related goods and services -- spending which many millennial moms recognize they can't afford right now.

The cycle is a difficult one to break out of : The economy is rough, so they put off having kids, which reduces spending, which makes the economy suck. This is where the affluent boomer grandparents come in. If they step in to help, they get to finance something far more precious than a second home or another boat and the nation gets pulled out of the economic doldrums.

Most Popular