Baby boomers have been America's secret weapon for fending off recession

The retiring generation is pumping $76 billion of savings into the economy, helping the US stave off recession, market veteran Ed Yardeni said.

• Baby boomers are pumping $76 billion of savings into the economy, helping avoid recession, Ed Yardeni wrote.
• The generation is spending heavily on services, boosting payrolls and income, he wrote for the FT.
• Traditional recession indicators focus more heavily on the goods economy.

Talks of a looming recession are flaring across Wall Street, but the savings war chest of baby boomers has staved off a US downturn.

That's according to market veteran Ed Yardeni, who broke down why recessionary doomsayers are misguided. Among his main listed factors are the retirement generation's rising spending habits, amplified by a transition into retirement.

"Most importantly, the baby boom generation has started to retire with a record $76 trillion in net worth," he wrote for the Financial Times. "They are spending on restaurants, cruises, traveling and healthcare. All these services industries have been expanding their payrolls, thus boosting real incomes, and fuelling more spending."

That counters gloomy expectations of an impending consumer slowdown, which has been the basis for why the economy will eventually buckle. 

Instead, only the goods sector has shown signs of a growth recession, Yardeni said. But that's after the lockdown's hard-to-beat buying spree; today, goods spending remains at a record high when adjusted for inflation.

It's a fresh take on what the post-war generation can offer, given that retirees are often framed as a source of economic strain on younger individuals. With 4.1 million minted each year through 2027, some fear this will burden everything from equities to the labor market.

But to Yardeni, they're the reason no consumer recession has appeared in the past two years, he separately wrote in April:

"The Baby Boomers watched a lot of 'Star Trek' during the 1960s. They certainly took to heart Spock's mantra 'Live long and prosper.' He should have finished the thought with 'Then retire and spend it all before your expiration date," he then said.

Retiree consumption is one of many recession-canceling factors that Yardeni listed in FT. 

In his view, analysts were correct to originally expect a downturn, given the Federal Reserve's aggressive hiking cycle and a number of flashing recessionary indicators. 

But the problems typically brought on by tight monetary policy have largely been overcome, such as a credit crunch and speculative bubble. Although a banking crisis did appear last year, the Fed's emergency response was enough to squash credit fallout.

What's more, higher rates actually strengthened consumer resiliency, as households accumulated bigger returns on bank deposits and money market funds.

Meanwhile, the baby boomer focus on service spending may also have deformed indicators, making things look gloomier than they are.

"And what about the Index of Leading Economic Indicators?" Yardeni said. "It hasn't worked so well because it is heavily skewed towards the goods economy, which has been relatively weak, and it doesn't give enough weighting to the services sector, which has been strong."