Baby Boomers will increase health care spending and retirement savings, cutting into consumer spending in 2015, according to S&P.
Low levels of retirement savings, and expected rising health care costs over the next two years are going to create pressure on U.S. consumer spending, Standard and Poor’s reports this week.
While recognizing that many consumer sectors have improved over the past 12 months despite sluggish improvement in the economy as a whole, S&P said America’s aging population will need to increase retirement savings, and will have increased health care cost as well, putting a damper on consumer spending by 2015.
“We expect consumption growth will not only slow but may also reverse itself as the population ages,’’ said Michael Screbo of S&P. “The lack of meaningful growth in real personal disposable income is constraining consumer spending.”
S&P warns automobile sectors and home-building and improvement sectors will see continued growth through 2014, but that department stores, discount stores, electronics and restaurants will begin to see lower growth trends in the new calendar year.
Consumer’s next big spending holiday is Black Friday, the day after Thanksgiving, which actually opens on Thanksgiving this year for a number of retailers. The National Retail Federation predicts 140 million people will shop on Black Friday, a drop of approximately seven million from last year.
The NRF also said 33 million, a little under one-fourth of those who plan to shop, will do so on Thanksgiving Day now that they have the option to do so.
A new Spectrem’s Millionaire Corner survey of wealthy investors found that 22 percent plan to participate in Black Friday sales, and that 40 percent of those plan to spend between $200 and $500 on sales that day. Another 21 percent plan to go over the $500 barrier, while 22 percent plan to spend between $100 and $200.
The S&P report said two factors related to health care will cause a drop in consumer spending, assuming there is no significant change in economic growth in 2014.
The Affordable Care Act calls for all individuals to buy health insurance as a key component to universal health care and the requirement of insurance companies to cover pre-existing conditions. The individual mandate will require people who choose not have health insurance to buy it, cutting into their discretionary income.
Meanwhile, Baby Boomers will be spending more on health care to deal with the issues of aging, and are also likely to put more money away in retirement funding. Also, consumers over the age of 65 are warned about a decrease in both Social Security payments and Medicare coverage as vehicles to reduce the nation’s debt situation.
“We are already seeing material growth in health care insurance deductibles and co-pays as employers increasingly limit their contributions to workers’ health care costs, and as the influence of health care exchanges escalates,’’ the report stated.
Even in the auto industry, which has seen a small boom recently as consumers replace aging vehicles and interest rates remain low, the S&P report said the highest point of recovery has been reached.
The timing of the Federal Reserve’s tapering of bond purchases could also have an effect on consumer spending, but is possibly going to coincide with all the other factors to have a negative effect, the report stated.
Kent McDill is a staff writer for Millionaire Corner. McDill spent 30 years as a sports writer, working for United Press International and the Daily Herald of Arlington Heights, Ill. From 1988-1999, he covered the Chicago Bulls for the Daily Herald, traveling with them every day through the nine-month season. He also covered the Bulls for UPI from 1985-88, and currently covers the team for www.nba.com. He has written two books on the Bulls, including the new title “100 Things Bulls Fans Should Know And Do Before They Die’, published by Triumph Books. In August 2013, his new book “100 Things Bears Fans Should Know And Do Before They Die” gets published.
In 2008, he resigned from the Herald and became a freelance writer. The Herald hired him to write business features and speeches for the Daily Herald Business Conferences and Awards presentations.
McDill also writes a monthly parenting column for the Herald’s Suburban Parent magazine.
McDill is the father of four children, and an active fan of soccer, Jimmy Buffett and all things Disney.