How consumers are changing and what it means for marketing
Responding appropriately to consumer market shifts is a key component in both the present and future success of any firm that provides consumer goods or services. This report intends to inform that component by presenting a comprehensive picture of how US consumer markets are changing and how those changes might alter future demand for goods and services.
The 2010 US Census will count more than 300 million adults and children living in about 120 million homes – the world’s third largest nation. That Census will find a slowly growing society, but a huge consumer marketplace so complex and multi-faceted that it is no longer relevant or helpful to talk about “average Americans”.
Within a complex consumer market there is quite often unseen opportunity. Since the overall US population growth rate is less than one percent per year, more sales growth must come from serving those sometimes overlooked markets segments that are faster growing or have exceptional product or service needs.
Consumer trends do not work independently, but in fact act together to constantly re-weave the fabric of our society in ways that are only sometimes predictable. This report will discuss what is known about current demographic trends and consider what possible or probable effects those trends might have on consumer spending.
Shifting US age distribution
The median age of the US population – that mid-point in the age distribution – was exactly 30 years old in 1980. The 2010 Census will show that median had risen to 37, with an increasing number of states having a median age of 40 years old or older. But those medians mask the underlying complexity of our maturing age structure.
Chart I below shows the age distribution in ten year increments in 2010 and projected to 2020. Perhaps the most surprising aspect of this chart is how close in size is each ten year cohort from age 5 to 55. This pattern is characteristic of a slow growing and mature society where there are no longer wide swings in number of births, as there were in the 1940s and 1950s.
There will still be some age groups growing faster than others and some age groups may actually decline. But those differences will diminish over time. This means that the roughly 85 million consumers ages 15 to 34 now known as “Generation Y” or “Gen Y” will have an impact, for sure. But they are not likely to have the same disruptive effect that the 80 million Baby Boomers had when they were that age.
Gen Y’s impact will still be substantial, however, because they are in the new family or other household formation stage of their lives. The marriages, births, some home buying and new household formation that occurs between ages 18 and 35 has always resulted in large bursts of consumer spending, which ripple through the economy.
One key difference between Gen Y and Boomers is diversity. Over 40% of those ages 15 to 34 are either Hispanic, African-American, Asian or multi-racial, versus only 28% of Baby Boomers. That fact combined with their preference for digital media will likely alter how Gen Y shops or responds to advertising. But the largest consumer growth expected over the next decade will be among those ages 55 plus.
Between 2010 and 2020 the total US population is projected by the Census Bureau to increase by about 31 million people. As part of that total increase the number of consumers ages 15 to 44 are projected to rise by about 7 million. But the number of consumers ages 55 or older are projected to swell by more than 21 million – two thirds of the total increase and almost three times as much as Gen Y.
Chart II shows graphically how these differential growth rates occurred in the past decade (2000 to 2010) and how they are likely to play out between 2010 and 2020. The highest growth rate, and largest numeric increase as well, is projected to be among those ages 65 to 74, traditionally a period when most consumers retire and significantly reduce their spending.
But after falling for about fifty years the labor force participation of consumers ages 55 or older has been rising since 1995 and is projected by the Bureau of Labor Statistics (BLS) to continue rising for at least the next decade. What this means is a substantial increase in the number of older Baby Boomers who are now ages 55 to 64 that will stay in the workforce over the next decade.
According to BLS surveys, in 2010 there will be approximately 20 million employed persons in the US who are ages 55 to 64 years old and about 5 million ages 65 to 74.
The BLS projects that by 2020 the number of employed ages 65 to 74 will double to about 10 million. That’s a huge increase, but it still means 10 million working Baby Boomers who are now ages 55 to 64 may leave the workforce over the next decade.
The BLS is somewhat cautious in their projections of workforce activity among those age 65 or older. They forecast, for example, that in 2020 fewer than one in three Boomers ages 65 to 74 (31%) will be either working or looking for work.
Several trends are converging that suggest the BLS 2020 projection of workers ages 65 to 74 will prove to be well below what actually occurs. The first trend is the almost total disappearance of defined benefit retirement plans combined with the poor performance of the equities markets.
This suggests that only a small minority of people who will turn 65 over the next decade will think they have enough income to fully retire. Far more likely is that a majority of those at retirement age will be sufficiently worried about outliving their assets that they will stay in the workforce as long as they can. This is made even more likely because Boomers are generally in better health than their predecessors.
The second trend is the high percentage of men (35%) who are college graduates and ages 55 to 64 today. They have extremely low unemployment rates and will be 65 to 74 in 2020. A number of surveys suggest that a solid majority of these white collar workers will stay at work well beyond age 65, in part because they want to.
The third trend is the huge increase in the number of grandparents who are partially or wholly financially responsible for their grandchildren. This has come about partly because of high unemployment or underemployment rates of younger workers, many of whom are parents. Anecdotal evidence along with some early data from the Census Bureau surveys suggests that many grandparents are staying in the workforce in large part so they can pay for what their grandchildren need.
The combination of these trends suggest that rather than a 31% labor force participation rate among Boomers ages 65 to 74 in 2020, the actual rate will be in the vicinity of 50% and may even go higher than that.
Another factor than may keep aging Boomers in the workforce is the relatively high percentage of them who own a second dwelling or vacation home. According to BLS surveys Boomer homeowners ages 45 to 64 are 54% of all vacation home owners, and their numbers have been rising steadily for over a decade. The cost of owning their vacation homes may be what is keeping some Boomers from retiring.
Despite more older Boomers staying in the workforce, the BLS is projecting a workforce growth rate that will only average 1% per year. They project that the US labor force will grow by just 16 million workers to 169 million in 2020. They also forecast that 12 million of that growth will be among those ages 55 or older.
Workforce growth over this decade of only four million people under age 55 seems quite low considering the millions of Generation Y young adults who are now or soon will be in the workforce. The BLS estimates that in early 2010 about 10 million of them were looking for work.
As this recession ends the combination of job growth plus a projected population growth of over seven million 18 to 44 year olds will more likely result in an under age 55 workforce growth of at least six million new workers.