Millennials Lead: Today’s Largest Generation Will Impact U.S. Economy and Markets
When thinking of the U.S. millennial generation, many of us may imagine a carefree teenager. In reality, the leading edge of the Millennials is in its mid-thirties and establishing careers and families. They are establishing homes, settling down and engaging in decisions about how to spend and invest their money. We think the rise of the Millennials is likely to have a significant effect on the economy and provide a catalyst for new investment opportunities.
During our formative years — which roughly means the teenage years — individuals are highly impressionable as they seek to come to terms with the wider world. Events during those years can have a profound and lasting impact on views and behaviors. The Millennial Generation experienced many significant events during its formative years, including the Oklahoma City bombing, the shootings at Columbine High School, the 9/11 attacks, lengthy wars abroad and two periods of financial tumult.
As a result, these individuals have tended to be cautious in their approach to many things, including household formations, the use of credit and spending in general. We think this restraint explains to some extent the sluggish economy of the past seven years. As their confidence improves with a better economic backdrop, we think their actions are likely to influence the direction of the U.S. economy in the future.
This year marks the first time the Millennials — ages 20-35, totaling about 82 million individuals1 — will constitute the largest segment of the workforce and the population in general. Even the youngest of this generation may soon graduate from college and join the workplace. But Millennials have not had an easy entrance into the so-called “real world.”
Many graduated from college with hefty debt from student loans or entered the job market during the slumping economy of the Great Recession. For example, the youth unemployment rate (ages 16-24) reached 18.5% in July 2009 and kept rising to a record high of 19.1% in July 2010. It remained at 14.3% in July 2014.2
They are saddled with $1 trillion in student loan debt.3 They have higher levels of student loan debt, poverty and unemployment, and lower levels of wealth and personal income than Generation X and Baby Boomer generations had at the same stages of life.4
However, this most-educated of generations is putting that education to use. About 34% of 25- to 29-year-olds hold a bachelor’s, master’s, professional or doctoral degree.5 The leading edge of Millennials is starting to make career headway, including moves into management and leadership roles. Some will enter their prime earning-potential years within the next decade and the number of Millennial millionaires already outpaces the number of Generation X millionaires.6
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As they take a larger role in the economy, Millennials may be changing their cautious spending behavior and affecting wider economic activity. The trend in household formations has been improving since late 2014, for example, which we consider a good indicator of consumer confidence. The data show that individuals now are more willing to get married, have children and take on larger housing costs. As this trend continues, we think selected consumer-related companies stand to benefit.
These may include companies that provide childcare products and other goods that a young family requires. In addition, companies in the home improvement space may benefit because of spending by first-time homebuyers and those seeking to improve existing homes — another area of focus for individuals with growing financial security.
It is nearly impossible to talk about Millennials without discussing technology. Tech-savvy Millennials are the first generation that grew up with advanced technology at their fingertips and may be the last generation to experience analog technology. The rapid development of new technology shapes how they work, buy, sell, research, communicate, collaborate, relax — in fact, if affects every facet of life.
The speed with which technology has advanced in their lifetimes has had a profound impact on Millennials. For example, life without a smartphone seems unthinkable to most in this generation. Millennials were raised in the age of an upgrade cycle — the latest gadget and newest social network were always just around the corner. It’s an area of spending that seems to come naturally to most Millennials.
We think their demand for products and services in this sector is likely to have an impact on technology companies riding the secular trend toward electronic and mobile payments, social network and media that can benefit as advertising spending moves from “old world” media, and consumer companies that may benefit from changes in spending and customer experiences.
What’s next? Enter “Generation Edge” — those under the age of 18. Advertisers, retailers and app providers are rapidly focusing on the next group of consumers, who will find a different world than their predecessors: changing job prospects, perhaps a better macroeconomic environment, potential benefits of indulgent and aging baby boomers, analog technology limited to museums and, most importantly, different views on what and how to consume.
1 BridgeWorks, 2015
2 U.S. Bureau of Labor Statistics, Youth Unemployment and Employment
3 5 Economic Facts about Millennials, The Council of Economic Advisers, October 2014.
4 Millennials in Adulthood, Pew Research Center, March 2014
5 Millennals Most Educated U.S. Age Group, Bloomberg.com, October 2014
6 Insights into Luxury, Affluence and Wealth, Shullman.net
7 Edelman Insights, December 2012
8 Harris Interactive and Deloitte, January 2013
Past performance is not a guarantee of future results. The opinions expressed are those of the Ivy Investment Management Company and are current through July 2015. These views are subject to change at any time based on market and other current conditions, and no forecasts can be guaranteed.
© Ivy Investment Management Company
