May 25, 2023 by Dymphna

How we ended up with a “boomer-driven economy”

The trend is clear now. Prices will rise.

Are you feeling the pain of rate hikes? Are you feeling the crunch of inflation?

You’re not the only one.

But here’s a hard truth: not everyone is feeling that pressure.

I mean, sure. Most are. If you look at the consumer sentiment data from Westpac, the mood is in the toilet:

The index fell again in May, and is holding around the “dismal lows” of Covid.

In fact, the only time it’s been this bad before was during Covid, the GFC and the 10s recession!

C’mon. Are things really that bad?

(I guess a dozen rate hikes in quick succession really can suck the wind from your sails.) 

But this is just how households feel. And who can blame them.

But not everyone is doing it so tough.

If you look at where sentiment is worst, it’s with young-people, renter and people with a mortgage.

So who’s not doing it as tough?


Sentiment for those over 65 is holding up much better.

But let’s be clear. This isn’t a generation thing. This isn’t about when you were born.

The thing that renters, young people and mortgage holders have in common is that they’re all sensitive to interest rate movements.

A dozen hikes hurts them a lot.

Who it doesn’t hurt is people who own their own home – and those people tend to be older because that’s how a 25-year mortgage works.

So it’s not really fair to say that ‘boomers’ aren’t feeling the pain. It’s more accurate to say that people who own their homes outright aren’t feeling the pain.

But the interesting thing here is that boomers are really driving the economy right now.

Basically, consumption is two thirds of GDP, and boomers are the only cohort increasing their consumption. Everyone else is flat-lining.

That was the conclusion of economist Tarric Brooker.

“For those under 35 in 2018, real wages went nowhere for a decade. Unsurprisingly their real consumption also went no where, so they make zero contribution to growth in the consumer economy on a per capita basis”:

“Even 35-44s consumption hasnt grown hugely despite their stronger wages growth from 2008 to 2018, arguably due to the large growth in this demographics debt level”, Brooker argues.

“So that leaves older generations powering the economy with the largest spending growth”:

“With real household incomes now falling in a big way & rates crimping the spending of 35-54 demo in particular, Australia has a Boomer powered consumer economy”.

“Engine after engine of the consumer economy has flamed out, leaving only a few remaining and the RBA want to keep them going, regardless of the sacrifices required”.

The other way to put that is to say that without boomers, the economy would be in much worse shape.

And for the immediate future, with interest rates and inflation sidelining everybody else, boomers might be all we have left.