Gen X, younger generations spending less than older Americans, study shows

A new study from Bank of America shows those are under 50 years old are spending less than older American. Bank of America Institute Senior Economist David Tinsley joins Yahoo Finance Live to discuss the difference.

Video Transcript

- Taking a look at the state of the consumer. It's been a mixed picture, to say the least. Well into the spring season, we've heard from retailers like Macy's and Home Depot saying the consumer spend trends have weakened this quarter. Despite challenges from higher inflation, households continue to spend at a healthy pace in May.

Bank of America released findings from its latest consumer checkpoint report, which showed credit and debit card spending stabilized last month. For more, we're joined by David Tinsley, Bank of America Institute senior economist. Thank you so much for joining us, David.

So looking at the title of this note here, "The Young and The Restless." So we're talking some generational differences here. Talk about what stood out to you from this latest data.

DAVID TINSLEY: Yeah, well, as you say, broadly speaking, the overall picture is stable. But really, this title comes from the fact that younger generation spending is a lot weaker than older generation spending. Is sort of 4% difference year on year. When I say younger, I'm saying Gen X downwards. So anyone below 50, really. And then really the older upwards of that. So that's really the striking thing.

And the rest, listen this title, this comes from the movers. One of the reasons for this difference is because when you look at the data, younger people move house about twice as much, twice as frequently as the older generations. And every time they move, they face higher rent, higher mortgage rates, and quite possibly higher house prices. So they have, in a sense, a fiercer gale blowing in their face is from housing costs.

- And so David, we-- I don't know if you just heard what Josh was talking about that there seems to be sort of a shift in the most dire recession predictions coming from some of your economist colleagues across the street. How does what you're seeing in the consumer picture feed into whether we're going to be getting recession and when.

DAVID TINSLEY: Well, that's an interesting point. I mean, the consumer isn't in recession. They're doing quite well, thank you very much. Since the start of the year, this month was flattish, but by and large, they've also benefited from a little bit of a headwind from lower gas prices.

But I think-- and this is where I'm not a forecaster in my role. So I won't seek to predict when the recession will occur or if it will. But I think a lot of forecasters have always said the recession would probably come outside the consumer in any case. So for construction, business investment, trade, maybe those kind of things. So the consumer is strong. I don't think that necessarily means the US can't go into a recession.

- Is-- OK, so if the consumer is strong, does that necessarily correlate to companies still having pricing power, or has pricing power receded?

DAVID TINSLEY: That's a good question. So I think-- going back to my earlier point, this generational split has a role there. So in aggregate, which is decent, if you're selling into markets aiming at the older generations, yeah you're probably doing better than average, and you've got pricing power.

If you're aiming more at the younger gens, maybe not so much. I suspect this generational spend story translates across into different kind of perspectives from business on how they are faring overall.

- And David, what are you seeing in terms of what different generations are prioritizing in terms of their consumer spend?

DAVID TINSLEY: Well, that's a good-- I mean, what's happening, essentially, is it's still really this story of an unwind of good spending into services. And we're seeing that really across all generations. But I think particularly amongst the older generations travel, international travel, is doing very well. Cruise, cruises, as well. So I think, in a sense, as we go up the generations, the travel is really standing out.

- David, you know I don't know if this is research guys have done. But I've been looking at your note from today about these the generational differences. Is the gap that we're seeing typical on a historical basis? And do Gen Z and millennials have the potential future earnings power enough that they will eventually get to the current spending level of the older cohorts now?

DAVID TINSLEY: Yeah. Right. So I mean, I think typically, you would expect this size gap to persist for that long. When you look at the accumulation of wealth, it's very unequal, really, across the generations. Older generations have 8 times the amount of net wealth than the younger generations.

And there's always going to be some effect because, obviously, people accumulate that over their lives. But quite a part of that is also just house prices. And the fact that this tight supply in housing, which has persisted for a long period of time, has forced up prices. And that's benefited people who own and disadvantage people who don't own.

And so I think there is this kind of built-in if you like, headwind blowing against the younger generations currently until that housing market until particularly supply comes on in more significant amounts.

- Yeah. That's quite interesting. So I guess we'll keep in touch and see if that starts to happen. David Tinsley, Bank of America Institute senior economist, thank you.

DAVID TINSLEY: Thank you.