Gen Z and millennials are promoting up the economy — with help from their parents, ‘Oracle of Wall Street’ says

• Gen Z and millennial consumers are helping keep the US economy strong, Meredith Whitney wrote in the Financial Times.

• Many in this group still live with parents, helping ease costs faced by other households, she said.

• Whitney expects weakness to flash in upcoming consumer-survey data.

Young spenders are a key backbone of today’s US economy, as their spending patterns offset weakness in other age groups, Meredith Whitney — the famed economist known as the “Oracle of Wall Street” — wrote in a new op-ed for the Financial Times.

In fact, consumers between the ages of 24 and 38 hold the largest discretionary spending power in the US and are likely the chief reason behind rapid growth in certain spending categories, she said.

While Whitney considers these spenders a chief driver behind the economy’s unending strength, it wouldn’t happen if the cohort didn’t have its own source of support: parents.

“Many don’t own homes, more live at home with their parents than at any time on modern record, and over half still remain on their parent’s cell phone plans, and other shared cloud services, among other parent-subsidized expenses,” she wrote.

According to a Harris poll from September 2023, about 45% of adults aged 18 to 29 were still living with their parents. That saves them on housing-related expenses that are a drag for other households, including rent, insurance, taxes, and mortgages.

These aren’t small costs, as both the housing and rental markets have become unaffordable for many Americans.

In 2023, nearly half of US tenants spent over 30% on rent. At the same time, those wanting to buy continue to face record high prices, as supply remains strained.

ATTOM data showed that in the second quarter, only seven counties were more affordable than their historical average.

This adds to difficult conditions for lower-income and middle-class consumers unable to draw on their parents. Whitney anticipates spending struggles to be made plain in the upcoming annual consumer survey from the US Bureau of Labor Statistics, released September 25th.

“I estimate that it will show the 2023 after-tax income for over 50 percent of US households, not only below 2022 levels, but below 2021 and 2020 levels as well,” she said, later adding: “I believe the underlying data may be even worse than it appears. The fact is that 2023 will be the first fiscal year of data without any consumer COVID stimulus subsidies.”

Recent months have made this deterioration increasingly clear. Over the summer businesses, from Dollar General to McDonald’s have blamed tumbling earnings on weaker consumption.

Whitney has previously cautioned about out sliding financials among lower-income consumers

Earlier this year, her research found that those making between $50,000 to $70,000 were spending 99.7% of after-tax income to stay afloat.

However, the “Oracle of Wall Street” economist — so known for correctly predicting the 2008 crisis — did not predict a recession, given that stronger cohorts would continue to power the economy.

Parent-subsidized spenders appear to be proving her point.

Aside from Gen Z and millennial consumers, top-earners are also helping keep the US economy afloat, Whitney noted. After-tax earnings for those making over $100,000 have remained largely unchanged between 2019 and 2022, she said.

Nor has spending changed. Those raking in over $150,000 are still active in the economy, though buying has shifted toward essentials over discretionary products.

Read the original article on Business Insider