Monday, July 27
Currently, the war in Iran is months old. There’s zero consensus as to when it will truly end. The Strait of Hormuz has been open and closed. And now Treasurys come with an asterisk.
Yet despite this unclear economic data, the U.S. consumer hasn’t cracked.
In April, disposable personal income fell while consumer spending rose. The bears say that cannot last.
I think an explanation for why it could go on longer is the G-shaped economy. By that I mean Generational, as in baby boomers collectively sitting on $89 trillion in net worth are retiring in historic numbers.
In 2025, 1.85 million retired workers filed for Social Security. As they left the workforce, they stopped earning and it drove disposable income lower, decreasing average hourly earnings. Thus, the income data looks weak.
However, consumption remains strong. And I think it could be partly due to the boomer generation.
See, the baby boomers are doing great. If they’re still working, they’re making a lot of money in salaries. If they’re retired, they’ve got $89 trillion of net worth collectively as a nest egg.
Paychecks are getting rarer for boomers, but they still have plenty of money to spend.
As the affordability crisis squeezes younger generations, the boomers are filling the gap via supporting adult children, helping grandchildren, and generally drawing down that $89 trillion.
Obviously, it would be much better if we didn’t have an affordability crisis. But we’re getting through it by boomers helping their kids.
So, it’s not a consumption bubble, but a generational wealth transfer. Economic models are missing it because they focus on income, not assets.
The K-shaped economy is real, to be sure. But it’s incomplete. The G-shaped economy explains why consumption is strong as income looks bleak.
Daniel A. White is an investment advisory representative of and provides advisory services through CoreCap Advisors, LLC. Daniel A. White & Associates and CoreCap Advisors are separate and unaffiliated entities.