Many retirement destinations expected to experience over 30% consumption growth due to population growth alone.
Major demographic shifts over the next decade will have a dramatic impact on U.S. consumer spending, according to a new report from The Conference Board. Key consumption categories affected include health, retirement and education spending.
The report, “The Impact of Demographic Trends on Consumer Spending,” examines the size and age distribution of the future population, how spending patterns will change as people age, and provides perspective on how population growth trends are likely to impact future spending.
The large generation of baby boomers (born 1946–1964) is aging. Life expectancy for the elderly is increasing. As a result, while the U.S. population as a whole will grow by 8% between 2015 and 2025, the number of people between the ages of 70 and 84 will spike by 50%. As people age, they also retire. The number of retirees is currently increasing by about 1.2 million a year, about three times as much as a decade ago. Retiring dramatically changes both time allocation and consumption patterns.
During the same time period, population growth in the 5–24 age group will remain essentially unchanged, for two reasons. First, the large generation of Millennials is aging out of this group. The smaller generation Z that follows won’t replace the aging of the Millennials. Second, fertility rates dropped during and after the Great Recession. Therefore, spending concentrated in these age groups is likely to grow slowly at best.
Demographic shifts will have a significant impact on health care spending. “Over the next decade, health spending will grow 15%, due to demographic trends alone, compared with 8% for total consumption spending,” said Gad Levanon, chief economist, North America, The Conference Board, and an author of the report. “More so than any other category, health care spending is concentrated among the oldest households. Long-term care, in particular, is likely to experience even more dramatic growth of 20-25% due to demographic trends alone.”
The report reveals several other important consumption patterns over the next decade:
- In addition to healthcare, other impacts from aging on consumption emerge from the tendency of retired people to spend more time within their homes on various activities and hobbies. As a result, spending in categories such as household maintenance, gardening, reading, and pets is likely to grow well above the rate of total consumption. In addition, consumption of products targeted at the older population within other broad consumption categories, such as personal care products and travel, are likely to experience rapid growth as well.
- Consumption categories that older households tend to spend less on include men’s clothing, food away from home, rented homes and used cars, among other categories, and will experience slower-than-average consumption growth.
- Since the bulk of education sector spending is concentrated within the 5–24 age range, which will essentially remain unchanged from 2015–2025, the industry is likely to see slow growth rates in the coming decade. Other types of spending concentrated in this age group, such as school supplies and youth clothing, will suffer as well.
State and metro area trends over the next decade include:
- In recent years, domestic migration has been recovering after several years of low mobility during and after the Great Recession. In general, the shift from the Northeast and Midwest to the South and West is likely to remain in place from 2015–2025, but with important intraregional trends where some locations gain population and others lose.
- Many retirees move their residence to different locations, taking into account weather, cost of living, tax rates and other factors. Since the baby boom generation is so large, the number of baby boomers who are retiring or about to retire will make the shift to retirement destinations an especially important demographic trend from 2015–2025. The flip side of this trend is that states that are typically large sources of retirees moving out of state, such as New York, Illinois, and the District of Columbia metropolitan area, are likely to lose a disproportionate number of their older and affluent residents.
- The U.S. is undergoing a major shift in immigration trends, with fewer immigrants coming from Latin America and more from other parts of the world, including Asia. This will have important geographical implications as Latinos and Asians tend to choose different sets of locations within the U.S.
- The U.S. is likely to experience large variation in consumption growth across states and metropolitan statistical areas (MSAs) due to population trends. While consumption in states like Florida, Texas, Arizona and Nevada is expected to grow more than twice as fast as the national average, states like New York and Illinois will barely see any growth at all. Rhode Island and Michigan will actually experience negative consumption growth.
- Consumption in retirement destinations is likely to grow especially fast, with many of these areas expected to experience over 30% consumption growth due to population growth alone. In these locations, spending on health care is likely to be especially high.
Businesses can be proactive in anticipation of these major changes, and improve future planning. “More accurate intelligence about future demand is an important advantage over competitors,” added Levanon. “Though exact projections of demand are never certain, businesses should grasp the opportunity to use what is known about demographic trends to make better business decisions. How can businesses use this information to plan better for the future? While the answer varies across industries, markets and companies, certain factors could be helpful in thinking through strategy.”
This report is part of a series of studies that explores the relation between demographics and consumption from various perspectives. The next report will take a deeper dive into more detailed consumption categories and locations and explore expected changes in consumption due to generational shifts and the impact of these consumption trends on business location choices.