The Seeds of the Next Economic Boom

I recently had the pleasure of visiting with a friend in Texas that I’ve known for almost 20 years. She has a young family, so we met at her 8-year old daughter’s soccer game. This was the fourth game of the day for the young athlete, and she would play another game in the early evening.

It was over 90 degrees out. There was little shade. While my friend’s oldest was out in the field, her 5-year old ran around playing with other kids, and her 3-year old napped. As we sat and talked it reminded me of when I was in her place, lugging my kids and their gear to different fields, rain or shine.

I’m glad I did it, but I have zero interest in doing it over again. It’s time for the next generation to do its part. So thank goodness they finally are… not only on the soccer fields, but in family life in general!

According to the Centers for Disease Control and Prevention (CDC), the number of annual U.S. births increased by 1.4% last year, moving up from 3.93 million to 3.99 million, or some 60,000 more kids. This is the first increase in six long years.

60,000 is a cause for celebration. We need more babies. Beyond causing sleep deprivation in parents, they also require 18 years of copious spending, minimum, and that’s what drives the economy! As children age, families spend more money on clothes, shelter, sports, music lessons, vacations, car insurance — you name it, it costs more with kids.

Once the youngsters leave home, the empty nesters then focus on retirement by saving and paying down debt. In 2008 we reached the peak year for baby boomer spending. After that, the generation was firmly in the empty nester category, and had moved from spending more to saving more.

Behind them are the members of Generation X, who are still raising their kids, but there are fewer people in this generation. They can’t buy as much stuff, and therefore drive our economy, as the boomers did.

This is where the millennials come in.

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As the rising young generation, which happens to be bigger than the boomers but more spread out, we need this group to hop on the spending train by having children. So far, they’ve refused to board. We all know why — the economy.

Young people have had a difficult time finding jobs in general. More specifically, good-paying, secure jobs. Without financial stability, millennials have been slower to wed and slower to start families.

The recent data from the CDC suggests this might be changing… and the good news doesn’t stop there.

Other research notes that women who are older and more educated are the most likely to have children in the years ahead. Birth rates rose 3% in 2014 for women in their 30s, while remaining flat for women 25 to 29. At the same time, according to the Wall Street Journal teenage births keep falling and reached a record low last year.

Putting all the pieces together, it appears that older millennials are either finally stable enough to have children, or simply think they’re running out of time.

Either way, our economy will be the big winner as this large generation starts spending in earnest to support their kids. While higher birth rates will take a few years to start driving the economy, eventually the trend will show up in the demand for more housing, more family cars, and of course, more soccer balls.

But that’s still years off. Before the economy starts to look better, we have to suffer through the effects of the boomers decreasing their spending.

Fortunately, that’s why studying demographics is such a profitable enterprise. While the boomers are spending less, they are spending in more focused, specific areas: luxury goods, expensive getaways, health care, etc.

That’s how I approach my own investment portfolio, by asking: “How are the biggest spenders influencing the economy?” And it’s the same approach I use in my Triple Play Strategy, which we officially launched to the public yesterday.

So while the next few years could be quite difficult as we deal with overhanging debt and bubbles in financial assets, there are still plenty of ways to invest. As for the economy, there are also reasons to be optimistic about the future. 3.99 million reasons, to be exact

Rodney Johnson

Rodney

Follow me on Twitter @RJHSDent

Categories: Life Cycle

About Author

Rodney Johnson works closely with Harry Dent to study how people spend their money as they go through predictable stages of life, how that spending drives our economy and how you can use this information to invest successfully in any market. Rodney began his career in financial services on Wall Street in the 1980s with Thomson McKinnon and then Prudential Securities. He started working on projects with Harry in the mid-1990s. He’s a regular guest on several radio programs such as America’s Wealth Management, Savvy Investor Radio, and has been featured on CNBC, Fox News and Fox Business’s “America’s Nightly Scorecard, where he discusses economic trends ranging from the price of oil to the direction of the U.S. economy. He holds degrees from Georgetown University and Southern Methodist University.