MEET THE 'ECHO BOOM': The 80 Million People Who Will Save The American Economy

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Photo: Flickr / breezy421

The Great Recession may have delayed the plans of many recent college graduates.But the “Echo Boom” generation — the sons and daughters of Baby Boomers — are too numerous to be kept down.

There are 80 million of them, and they’re out to save the American economy.

All of the normal things that drive the economy — household formation, entering the workforce, etc. — will be driven by this slice of the population.

Thanks to the Echo Boom…

  • Stocks will go up
  • More households will be formed, leading to a recovery in real estate.
  • The national income will surge.
  • Lots more spending will happen.

We wanted to explain why, despite the licks they’ve taken, this group will end up bailing out the economy.

They're generally defined as having been born between 1980 and 1995, making the oldest Echo Boomers just 33. If you conceived to Duran Duran, you gave birth to a Millennial.

There are approximately 80 million of them. Compare that with 77 million baby boomers.

Source: NCoC

And eventually they will be the largest cohort in the country.

They are less white and more diverse.

Their values are mostly similar, although they may be less materialistic than other generations.

They will be better educated.

And they are more optimistic. And for good reason...

At some point, housing formation will return to the mean.

It's already getting there.

JMPG estimates nearly 3 million in pent-up demand. And look at the growth rate in couples! (Data not available for same-sex couples).

They've already caused a boom in rentals. This will eventually spill into homebuying.

And again, the oldest millennials are in their early 30s — nowhere near peak earnings years.

And their overall assets are at least two decades away from topping out.

As it turns out, about one in three 18- to 32-year-olds is already a homeowner.

Source: Kiplinger

And nine out of 10 millennials say they eventually want a place they own, according to a recent Fannie Mae survey.

Source: Atlantic

Now, it's true about half of Echo Boomers' wealth is in bonds, money market accounts or cash...

Source: Kiplinger

And only 22% of investors under age 35 -- many fewer than in 2001 -- say they're willing to take on substantial risk.

Source: Kiplinger

But analysts like Tobias Levkovich believe that will change as the cohort enters prime earnings age — we know that the more 30 somethings, the higher the S&P goes.

And equity values turn out to be closely related to the age distribution of the population, so you can plot the path that the P/E ratio is likely to follow in the next few decades based on demographics.

Source: Calculated Risk

Most brands doing well now will continue to do well in the future.

And they will never stop buying tech.

Their greater tolerance for caring for their elders will help lower medical costs.

Finally and most importantly, they are waiting longer to get married. Presumably that means more economically efficient marriages and fewer inefficient (ie divorce-fated) ones.

In sum: this better-educated, more financially savvy generation will yield a higher stock market, higher earnings, stronger economy.

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