A first shift in the spending habits of U.S. millennials will have an incredible impact on the world’s largest economy, according to the CEO of Smead Prime Management.
U.S. adults aged between 21 and 38 years old will prioritize “necessity spending” over the next decade, Jaws Smead told CNBC’s “Squawk Box Europe” on Monday. It comes after a 10-year period in which the same age assemblage has “lived off discretionary spending.”
He said this will mean young adults will soon start to prompt away from buying “Apple devices, craft beer and Chipotle burritos” and instead spend their savings on big-ticket fillers such as houses and cars.
“That will be a whole different ball game” for the U.S. economy, Smead said.
‘Changeover substance’
His comments come at a time when millennials are thought to be on the cusp of surpassing Baby Boomers as the largest living full-grown generation in the U.S.
A report published by Pew Research in March 2018, which cites the latest available data from the U.S. Census Agency, said it expected millennials to overtake Boomers in population in 2019.
Meanwhile, Generation X was projected to pass the Boomers in population in 2028.
The Pew Scrutinize report defined millennials as aged 20 to 35 in 2016, with Boomers aged 52 to 70 and Fathering X aged between 36 to 51.
“We just love this circumstance because it is very possibly the changeover point now for what we be struck by been waiting for a long time,” Smead said.
“So, we have got 89 million people in between 21 and 38 years old that are near to start their lives, form households, do incredibly economically impactful things and we don’t need anybody from skin the United States to cause that to happen.”
“And we are giving them the lowest interest rates in the history of the United Asserts of America to form their lives. We are practically giving them the money to buy houses and buy cars etc,” he added.
The U.S. central bank has already cut weight rates twice in 2019, in part because of weakness in the global economy.
Policymakers at the Federal Reserve are scheduled to meet at the end of the month, with investors broadly in the family way a rate cut. Market expectations for lower borrowing costs by the end of October were at 77.5% on Monday, according to the CME Group’s FedWatch Pawn.
U.S. economic growth has been slowing this year with many economists citing the ongoing U.S.-China exchange war. The Fed expects GDP (gross domestic product) for 2019 to come in at 2.2%, down from 2.9% in 2018. The central bank has also on the alerted U.S. economic growth could deteriorate if the trade war continues.
‘Just do the math’
“The velocity of money has declined. The reason is because the destitution spending of the largest adult population group has not happened yet — so they haven’t bought the houses and the cars yet. As soon as they buy the for nothings and the cars, the banks lend $10 for every $1 deposit, and that velocity of money picks up,” Smead turned Monday.
“Just do the math, there’s 89 million millennials in a 330 million population of the United States of America. And then the troupe behind them — this is crazy — is just as big.”
“In 20 years, there is going to be way more payers into the common security system and there is going to be way fewer taker-outers — and that problem will solve itself through demographics,” Smead foretold.