Many economists continue to question the resilience of consumer spending in the US. The naysayers don't believe it's sustainable and continue to expect significant consumer retrenchment. They claim that the economy is "K-shaped," with the wealthiest 10% of households accounting for 50% of all retail spending. Those widely quoted numbers are from Moody's Chief Economist Mark Zandi. They make no sense to us.
We don't doubt that the growth of high-income households' spending has been faster than that of low- and middle-income households over the past couple of years. The former has certainly been boosted by a very positive wealth effect from the stock market. The latter undoubtedly slowed over the past couple of years once consumers spent all the government-provided pandemic support checks. But there is no way that 10% of households account for 50% of consumer spending. Just go to Costco or your local mall to see what we mean.
Our alternative is the "G-shaped" economy, in which older Americans, who tend to be among the wealthiest households, provide financial support to their younger adult children and grandchildren. In our opinion, much of the affordability crisis in America today is affecting younger generations, while the older generation of Baby Boomers is helping them cope with it. This explains the resilience of consumer spending and suggests that it can continue.
Let's have a close look at the data that, on balance, support our relatively optimistic viewpoint:
(1) Retiring Baby Boomers earn less and continue to spend. The alarmists are alarmed that real disposable income (DPI) has been flattening in recent months (chart). They say that real consumer spending cannot continue to rise to record highs as it has so far. We attribute the real DPI flattening largely to the retirement of Baby Boomers. As more of them do so, they no longer earn paychecks. That is weighing on real DPI because they tend to earn more than younger workers. They are drawing on their retirement funds to support their spending.
Just for fun, let's assume that real DPI remains flat over the next several years and that real consumer spending continues its current upward trend. If so, then real consumption will start to exceed real DPI around 2030. In this scenario, the personal saving rate will then turn negative if and when that happens.
(2) Baby Boom retirement wave is underway. Social Security data confirm that the Baby Boomers are retiring at a faster pace (chart). In 2025, a record 1.85 million additional retired workers received Social Security benefits.
That pushed the total to a record high of 53.6 million retired workers receiving Social Security benefits (chart).
Retired workers now account for a record 19.5% of the civilian working-age population (chart).
The labor force participation rate for those aged 65 and older has been declining since COVID (chart).
