Independent economist Tarric Brooker posted an interesting thread on Twitter arguing that the Baby Boomer generation now holds the keys to Australian consumption growth and ergo the economy.
Brooker argues “the reason the financial interests of Boomers hold so much sway in Australia isn’t solely because of their status as a large voting bloc, it’s because they are one of relatively few engines remaining for the consumer economy”.
“For those under 35 in 2018, real wages went nowhere for a decade. Unsurprisingly their real consumption also went no where, so they make zero contribution to growth in the consumer economy on a per capita basis”:
Source: Tarric Brooker
“Even 35-44s consumption hasnt grown hugely despite their stronger wages growth from 2008 to 2018, arguably due to the large growth in this demographics debt level”, Brooker argues.
“So that leaves older generations powering the economy with the largest spending growth”:
“With real household incomes now falling in a big way & rates crimping the spending of 35-54 demo in particular, Australia has a Boomer powered consumer economy”.
“An economy that policymakers fear will stall if confronted with much lower housing prices aka reverse wealth effect”.
“When looking at the actions of the RBA and govt over the years through this lens things come into focus”, Brooker says.
“Engine after engine of the consumer economy has flamed out, leaving only a few remaining and they want to keep them going, regardless of the sacrifices required”.
It is hard to disagree with this analysis.
The RBA’s aggressive interest rate hikes are directly impacting roughly one third of households with mortgages, primarily Generation Xers and Millennials with young families.
Their disposable income has been slashed at the same as their real wages are falling at the fastest pace on record.
Another one-third of (mostly young) households in the rental market are also being hammered by the fastest rental increases on record alongside falling real wages, which is slashing their disposable income.
At the other end of the spectrum are the older generations (dominated by baby boomers) who mostly own their homes outright.
These cohorts are unaffected by soaring mortgage rates nor soaring rents.
Some are even benefitting from the latter given they dominate the ownership of investment properties (many without leverage).
While those older Australians on the aged pension have their incomes indexed to inflation (unlike workers’ wages).
To the baby boomers go the economic spoils!
