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Everybody and their mother expected the US to fall into recession in 2023.
Don’t believe me? Here is a brief list of those people and institutions who expected a recession going into this year:
Jamie Dimon, CEO of JP Morgan Chase
Jan Fraser, CEO of Citigroup
Mary Barra, CEO of General Motors
Doug McMilon, CEO of Walmart
Scott Kirby, CEO of United Airlines
Lance Fritz, CEO of Union Pacific
BlackRock, World’s Largest Asset Manager
Morgan Stanley, Global Investment Bank
Stanley Druckenmiller, Hedge Fund Manager
Ray Dalio, Hedge Fund Manager
Paul Tudor Jones, Hedge Fund Manager
Ned Davis Research, Investment Research Firm
In total, 98% of US CEOs expected a recession in 2023…
…but a recession has not materialized. And I think I figured out why.
The Recession that Never Was
Many people will say, “Robert, we had two straight quarters of negative GDP growth. That’s the definition of a recession!”
It’s true that we had two straight quarters of negative GDP growth:
But a recession is always typified by weakness in the labor market. That comes with a huge surge in the unemployment rate.
And with the unemployment currently at 50-year lows…
…the labor market is anything but weak. This is why the National Board of Economic Research (NBER) never officially declared the US was in recession (even after two quarters of negative GDP).
So why did a recession not materialize? There are two factors at work.
Two Pieces of Good News
The most obvious reason is energy prices dropped.
After the Russian invasion of Ukraine, oil and natural gas prices went parabolic as key suppliers of petrochemicals and other commodities were taken offline:
You may recall some people thinking Europe would “freeze” if prices remained high…
…but much like the 2023 recession, that too did not come to fruition as oil and natural gas prices soon receded:
But while oil prices falling is an obvious reason for waning recession fears, the latter is going underreported.
The Greying of the West
In my newsletter titled “Five Mega Trends for the Next Five Years,” one of the trends I discussed was the biotech revolution.
Countries like the US, Europe, Japan, and China will see their populations decline over the next 50 years.
This is due to the rapid aging of the Baby Boomer generations:
While my research focused on how this trend would affect the healthcare market, I’d missed a major point on how this would affect the economy as a whole.
Because when you drill down on the numbers, the greying Baby Boomer generation is providing an unprecedented tailwind for the economy.
And that boom will likely help the US sidestep a recession.
Boomers to the Rescue
Going into 2023, economists, CEOs, and traders had expected consumers to pullback on spending, causing a recession.
But many – including me – had not considered the impact of the “baby boomer spending boom.”
The Baby Boomers – or the generation born between 1946 and 1964 – are currently 59-77 years old.
This demographic cohort had a net worth of $73.1 trillion at the end of last year. That accounted for over half of all net worth in the US:
And as more of the Boomer generation retire, the more they are spending on travel (including airfare, accommodations, and cruises), eating out, and health care.
And it’s showing up in the economic data.
The Baby Boomer Spending Boom
Baby Boomers are living it up.
The generational cohort is splurging on cruises, restaurants, and other “cyclicals.”
And while overall spending dipped 0.2% year-over-year in May, according to American Express’ credit card data — baby boomer spending rose 2.2%.
Part of this is due to the ramping up of spending as they benefit from a spike in Social Security payments.
Starting in January, Social Security recipients received an 8.7% cost-of-living adjustment, the biggest increase since 1981. That increase — caused directly by high inflation — is boosting the average retirees’ monthly payments by an estimated $146.
Bank of America spending data shows a noticeable bump in spending by households that received the cost-of-living boost.
This has bled into a surge in hiring in sectors benefiting from this spending. That includes cruises, restaurants, and other “cyclical” spending…
…a trend clearly showing up in employment data.
The Old Saw Holds True
As an economist by trade, I’ve heard this quote many times in my career:
And it looks like we can add the “2022-2023 Recession” to this long list. But why we need to recognize where our forecasts fell short, we also need to fully understand how these spending dynamics will fuel the economy moving forward.
Because if I’m correct, this “Boomer Spending Boom” could propel markets for many years.
And my portfolio is positioned to ride this spending higher.
Stay safe out there,
Robert