There are many reasons why the global economy is slowing and the dark clouds on the horizon look ever more threatening, however, if you read a research note issued last week from Raymond James, it could be those closer to home that are the real problem. It seems that millennials might be the reason that: growth is slowing, central banks are losing the fight against inflation, and there is excess supply almost everywhere.
You see, as the report states, millennials are spending less and saving more than the generations before them. In a note to clients, Tavis McCourt, an analyst at Raymond James believes there has been a ‘generational change’. Following the financial crisis, the generation after the baby boomers became more cautious, leading to ‘frustratingly low growth, deflationary biases in prices, excess supply, and increasing debt from the supply side attempts to improve the situation because the savings rate is going higher’. If you look at the data from the St. Louis Federal Reserve, the US personal savings rate was 8.1% in August. Just over 20 years ago it was 5.7%.
As these millennials become the main income earners and spenders, and as the baby boomers start to retire the situation may only get worse. As McCourt states ‘So, what we have is a global increase in personal savings rate, which has caused excessive supply increases globally (disproportionately in China), and U.S. consumers wanting to save more (to be less insane than the last decade), which makes trade deficits less severe than they would be otherwise, growth to be slower than expected for both economies, and inflation to be lower than what it would be otherwise’.
So, what to do? Well, those of us that are of a certain age (i.e. non-millennials) may need to do our bit to save the world (economy). Dig out your Batman and Wonder Woman suits (or any other that take your fancy) and do your bit. Remortgage your house (or houses) / empty the kid's trust funds / spend all your savings / blow your pensions / ramp up those credit cards and spend spend spend. Saving the world might be the most fun ever. How and when you tell your offspring about what you have done is up to you. Me? I’d take a leaf out of Liam Bynes book and leave a little note in my Will. Upon leaving his position as the then Chief Secretary to the Treasury following the change of British government in May 2010, Byrne left a note to his successor David Laws saying "Dear Chief Secretary, I'm afraid there is no money. Kind regards – and good luck! Liam.". Mine will just say ‘My dear beloved children, I'm afraid there is no money. Someone had to try. Will always love you, Dad xx’. Whether they feel the same about me after reading the note is another thing!