Baby boomers have big impact on U.S. economy

by Gail E. Noggle

for the Business Journal

Consumer confidence is at its highest level in more than a decade and may well reach the postwar high recorded in the 1960s. Where do the good feelings about our economy come from?

?Record low levels of unemployment.

?A vast creation of paper and real wealth.

?10 years with minimal inflation and relatively peaceful times.

?Corporate profits that have doubled in 10 years and stocks, even when adjusted for inflation, at their highest levels in history.

Now, you ask yourself, just how long can this last, and what are the driving forces? Believed to be one of the most powerful forces is that of the baby boomers. Those people born between 1946 and 1964 approximately 69.5 million Americans.

This group of individuals is turning 50 years old this year, at a rate of one every seven seconds. The economic implications of this demographic shift are tremendous. By 2030, 20 percent of our population will be retired, compared to 12 percent today.

Scolded for being big spenders and bad savers, the baby boomers are inheriting $300 billion a year from an older, more cautious generation. Their parents own 53 percent of the wealth in the United States money, stocks, bonds, houses and other assets that are in the process of passing from one generation to the next.

About to receive more help than ever before from Mom and Dad, Grandma and Grandpa, this generation is in the midst of receiving the largest windfall in U.S. history.

Cornell University Consumer Economist Bob Avery estimates that between 1987 and 2011, two-thirds of the $6.8 trillion inheritance will go to one in 10 of the millions of boomers. One-third will go to the children of the richest 1 percent of the population. These lucky boomers will inherit an average of $1.6 million.

In addition to the trillions of dollars being inherited, statistics show that people between the ages of 45 and 50 are at their peak spending years. Both of these factors will have huge effects on the amount of money which will be pumped into the economy.

A theory has been established to predict the impact that baby boomers will have on the economy, since private-sector spending traditionally drives the U.S. economy.

Between 1993 and 1996, the number of 25-year-olds (in the United States) grew at an average annual rate of 1.9 percent, roughly twice the increase of the population at large. There are about 69 million Americans between the ages of 18 and 34 today, compared with 69.5 million baby boomers.

In March 1992, the United States Senate Committee on Labor and Human Resources stated the following:

"Now is the time to begin reshaping our public policies, business practices and social institutions as the baby boomers ... work their way toward retirement. Behind this group is the 'baby bust' generation, a significantly smaller group. Over the next decade, the rates of growth in the prime working-age population and the retirement population will be roughly equal."

As the previous generation's 49-year-olds grew in numbers, beginning in the mid 1940s, the economy expanded and the stock market moved ahead steadily for roughly 30 years.

Then, beginning in the 1970s, as the number of 49-year-olds began to decline, the stock market fell along with their numbers. In the late 1980s, as the number of big spenders again began to increase, up went stocks, creating the biggest bull market in the history of our country.

The inevitable event that is just now beginning is more people spending more money than ever before in history. Troy Shaver, president of John Hancock Broker Distribution Services, which represents Sovereign Asset Management, calls the baby boomers "The single most powerful economic force ever to pass through any society in the history of the world."

A recent study that correlates the historical birthrates and the Standard & Poor 500 Index historical annual rate of return demonstrates how the economy is driven by population.

As this powerful economic force moves through society and into its peak spending years, most experts feel U.S. investors will benefit from the strongest, most sustained, most profitable bull market in the history of the world.

For those of you already in the stock market, make sure you have a well-diversified portfolio one that suits your goals, risk tolerance and time horizon. For those of you not invested in stocks, the biggest risk is being out of the market when it surges.

So don't just sit on the sidelines. The stock market may be a bumpy ride, but one which is worth taking as these millions of baby boomers drive the market.

(Gail E. Noggle is a vice president and trust officer with Springfield Trust Company.)

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