What explains this year's pop in consumer spending? Boomers might be at least partially to blame.
The big picture: Social security recipients (of which retirees make up an overwhelming share) received an 8.7% cost-of-living adjustment this year — the single-largest increase in more than four decades. That is helping support spending, according to new research from Bank of America Institute.
Driving the news: The bank's card spending data shows faster spending growth this year among households more likely to receive those payments, relative to those that don't.
- In a new report, BofA economists found that as of mid-February, baby boomers and the preceding generation saw total card spending per household jump by 4% and 6% year-over-year, respectively. That compares to just 2% for all age groups.
The big picture: In aggregate, BofA found total card spending per household rose 5.1% year-over-year in January — compared to 2.2% in December. Early February figures show cooler spending activity.
Between the lines: Over the pandemic, spending among older generations — including consumers in that cohort on a fixed income — lagged relative to younger ones. Their incomes were disproportionately boosted by pandemic-era stimulus checks or tax credits.
- Now, that is unwinding: Those income-boosting effects have faded, and spending has slowed for younger generations.
- Some older consumers may be making purchases now that they put off in recent years. Spending on services is rising at a faster pace for them compared to the generational average, "perhaps reflecting their pent-up desire to enjoy travel and leisure activities," BofA says.
The intrigue: The cost-of-living adjustment was set based on an annualized measure of how hot inflation was running in Q3 2022. Inflation, while still high, has come down notably since then.
- 'This means that, in effect, the rise in social security benefits will have a little more spending power than if the inflation rate had not declined," the economists note.
