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Retirement trends are destined to have a major impact on the chemical industry. Ten thousand  Americans have been retiring every day since 2011, and the same trend will continue until 2030, according to Pew Institute research. As a result, household spending patterns are undergoing major change, given that people’s spending starts to drop quite sharply once they reach the age of 55.  Not surprisingly,  the U.S. economy has slowed, as 70% of GDP comes from consumer spending.

 

This paradigm shift has enormous implications for chemical companies, given that most of their production—think autos, housing, electronics, pharmaceuticals as examples—is driven by consumer demand.  It also means that affordability, and a focus on essentials, are becoming the critical drivers for future success.  New data from the Bureau of Labor Statistics highlights the extent of the changes that have already taken place since 2000. The chart above shows:

  • Back in 2000, there were 65 million households in the Wealth Creator (age 25 – 54) cohort, each spending a median $60,000 (in 2015).  And there were just 36 million in the lower-spending New Olders (age 55+) cohort, each spending $43,000
  • Last year, the number of Wealth Creators was virtually unchanged at 66 million, and their spending was plateaued at $61,000/year.  But the number of New Olders had jumped almost 50%  to 53 million, and their median spend had risen only 16% to $50,000/year

This spending increase by the New Olders (age 55+) is likely only a temporary phenomenon, however, as the second chart shows. The reason is that the decline in spending accelerates with age - nearly halving in the 75+ age group versus the peak-spending 45 – 54 age group.  This matters, as the boom in the number of older households is being driven by the ageing of the Baby Boomers, who were born between 1946 and 1964, and includes people who are between 52 and 70 years old in 2016.

The oldest Boomers only became  New Olders (age 55+) in 2001, and so, as a group, the Boomers are still concentrated in the 55 – 64 age group.  But this will start to change in 2021 as they begin to join the lowest-spending 75+ group. New Olders spending will likely then start to plateau and then decline, as latest Social Security Administration forecasts suggest the average 65-year old now has 20 years of life expectancy.

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The chart also provides some tantalising glimpses of how spending changes in various categories with age:

  • Housing is the largest single spend.  It peaks in the 35 – 44 age group, and is over a third lower in the 75+ age group
  • Food, drink & tobacco, and entertainment, also peak then.  Spend on these items then halves by age 75+
  • Spend on transport peaks in the 45 – 54 age group, and more than halves by age 75+
  • Spend on clothing and education peak also peak then, and then falls around three-quarters by age 75+; pension spending peaks then too, and drops to zero from 75+
  • Healthcare spend peaks later, in the 65 – 74 age group, and Others (miscellaneous and cash spending) peaks at 75+

These trends have major implications for chemical companies and those working for them.  New business models are urgently required, as I shall discuss next month, if revenues and profits are to continue to increase.  Demographics are destiny, after all, and it takes 25 years for a new baby to join the Wealth Creator (age 25-54) generation.  A decline in spending patterns is therefore inevitable over the next couple of decades, even if American women were to suddenly decide tomorrow to spark a new baby boom.

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Paul Hodges is chairman of International eChem (www.iec.eu.com), trusted advisers to the chemical industry and its investment community. He is a member of the World Economic Forum’s Industrial Council on chemicals, advanced materials and biotechnology, and presents the ACS ‘Chemistry & the Economy’ webinars.