Aging trends bad for growth?

The demographics of aging boomers and coming-ofage millennials will accelerate changes in the economy. The hard part is figuring whether they’ll be good or bad for growth.

The median age of the 75 million American baby boomers was 60 in 2015. The median age of millennials, who also number an estimated 75 million, was about 25. Given their sheer numbers, their effect on the economy inevitably will be huge.

What worries some Wall Street pros is that both generations will increasingly be squeezed financially, leaving them unable or unwilling to spend — further weighing on economic growth.

One force that has been pushing stock prices up and bond yields down is that many boomers have been playing savings catch-up, said Rob Arnott, head of money manager Research Affiliates in Newport Beach. “They’re in a panic about not having saved enough money for retirement,” he said.

Now, if predictions of poor returns on U.S. stocks and bonds in the next few years come true, boomers who have been spending freely may be forced to cut back for fear of outliving their nest egg. Dale Yahnke, at financial planning firm Dowling & Yahnke in San Diego, said the reality for millions of aging boomers is “you’re just going to have to live with lower rates of return.” Spending will have to be adjusted accordingly, he said.

Meanwhile, millennials face their own squeeze. Millions are burdened by student loans and high rents that eat up a huge share of income. And even if their pay rises at a faster pace, many millennials may be reluctant to spend — or take a chance on a new job — because of the financial woes they saw parents or friends endure after the 2008 crash, said Alec Levenson, a labor economist at USC’s Marshall School.

Risk aversion among the young “may be one of the biggest overhangs from the Great Recession,” he said.

But many economists and money managers caution against seeing demographic trends as inherently negative for growth. As companies including Airbnb and Uber have shown, it’s impossible to know in advance how many business ideas will spring up to disrupt or even replace existing industries — creating new opportunities in the process.

Dan Wiener, editor of the Independent Adviser for Vanguard Investors newsletter, said the biggest economic and financial surprise five years from now almost certainly will be “how poorly people’s predictions fared.”