NEW YORK–One analyst is predicting a fundamental shift in how Millennials in the U.S. spend money is going to have a significant effect on the U.S. economy. If true, the forecast would be good news for credit unions.
Bill Smead, CEO of Smead Capital Management, told CNBC’s Squawk Box Europe that U.S. adults between 21 and 38 years old will prioritize “necessity spending” over the next decade after a 10-year period during which the same age group has “lived off discretionary spending.”
What that means, he said, is young adults will soon start moving away from buying Apple devices, craft beers and Chipotle burritos and instead spend their savings on big-ticket items such as houses and cars.
“That will be a whole different ballgame” for the U.S. economy,” Smead said.
The Millennial generation is on the cusp of surpassing Baby Boomers as the largest living adult generation in the U.S. Meanwhile, Generation X is projected to pass the Boomers in population in 2028.
‘Love This Circumstance’
“We just love this circumstance because it is very possibly the changeover point now for what we have been waiting for for a long time,” Smead said during the interview. “So, we have got 89 million people in between 21 and 38 years old that are about to start their lives, form households, do incredibly economically impactful things and we don’t need anybody from outside the United States to cause that to happen.”
“And we are giving them the lowest interest rates in the history of the United States of America to form their lives. We are practically giving them the money to buy houses and buy cars, et cetera,” he added.
Smead additionally warned the Trump Administration the trade war with China is hurting the economy and that further Fed rate cuts aren’t going to make much difference. But changed spending habits by Millennials will have an impact, he said.
Velocity of Money
“The velocity of money has declined. The reason is because the necessity 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 houses and the cars, the banks lend $10 for every $1 deposit, and that velocity of money picks up,” Smead told CNBC. “Just do the math, there’s 89 million Millennials in a 330 million population of the United States of America. And then the group behind them — this is crazy — is just as big.”