At the beginning of last year, I wrote about the impact of consumer confidence on the economy, noting that consumers represent 70% of the entire U.S. Gross Domestic Product (GDP). At the time, I said that we were experiencing easing mortgage qualification standards, a willingness on the part of consumers to spend money on durable goods, and an overall rising confidence on the part of the American consumer. I predicted the impact of these favorable conditions on our economy meant a good year was ahead for our industry in 2015.
I was right. Ready mixed concrete volumes advanced from 300 million cubic yards in 2013 to 336 million in 2015, a 12% growth rate over the two-year period. While still not anywhere near the 2005 – 2006 highs, it was 80 million cubic yards more than the trough of the recession in 2010, a good rate of recovery by any measure. But interestingly, the comments I made 18 months ago are still holding firm today: mortgage standards and interest rates continue to ease, durable goods spending continues to expand, and overall confidence continues to grow. Through the first half of the year, we believe ready-mixed concrete production advanced at a double digit rate, the fastest rate of growth since before the recession, and may end a single year as high as the growth rate of 2013 – 2015.
But another factor is providing strength to the underlying growth in consumer spending, and it continues to mark the unleashed potential of the millennials, which I have said is the untapped fuel additive to the economy that has yet to fully kick in. Recent analysis indicates the younger generation is actually making up for a pullback in the levels of spending by the baby boomers in 2015 and the first part of 2016, helping propel the consumer economy forward this year. Consumer spending is such a dominant force in the U.S. economy that even a modest sustained decline in outlays typically heralds a full-blown recession.
Consumer confidence is tracked by two separate organizations: Thomson Reuters/University of Michigan publishes their Consumer Sentiment Index, and The Conference Board issues their own Consumer Confidence Index. Going back decades, these surveys have shown Americans in their 20s and 30s are more optimistic about the economy compared with their parents and grandparents. But the generation gap has been unusually wide in recent years in gauges from both the Conference Board and University of Michigan; confidence among consumers under age 35 is back to prerecession levels, while sentiment among people 55 and older remains far lower.
The divide, partly driven by greater optimism about income growth among younger households, helps explain why consumer spending slowed slightly in 2015 and early this year despite low interest rates, cheap gasoline and falling unemployment. Older Americans pulled back their spending last year and in the first three months of 2016, according to data from one major credit and debit card organization, while younger Americans ramped up outlays.
Of course, many 20- and 30-somethings bear high student-debt burdens that could restrict their ability to buy a home or make other major purchases. But while readings for consumers under 35 are choppy from month to month, they have nonetheless remained near prerecession levels. The confidence gap between the under-35 and the 55-and-over categories hit a record in June, at roughly three times its average level since 1980.
To be sure, consumer confidence can be volatile, and for the next four months, uncertainty at home generated by the 2016 presidential campaign could weigh on consumers, businesses, and the economy at large. Political turmoil has a tendency to rattle Americans of all ages. For instance, sentiment and confidence nose-dived amid the debt-ceiling fight of 2011 and the federal-government shutdown in 2013.
But looking past the occasional swings caused by political and social events, there is no doubt that younger Americans continue to be a force in the overall economy, and will drive growth in new household formations, and the corresponding growth in housing and general construction spending.