This is a question that has been troubling economists, investors and strategists for the past several years. Why are American consumers reporting the lowest sentiment readings on record – yet continuing to spend as if all was right in the world?
A mystery in statistics
All kinds of economic data make this question a real mystery. The University of Michigan’s consumer sentiment index fell to an all-time low of 44.8 in May, marking the third consecutive monthly decline. Inflation is boiling throughout the economy. And the job market is sluggish at best.
Meanwhile, spending continues to rise, albeit at a slower pace. So where are consumers getting their enthusiasm from?
Enter the ‘G-shaped’ economy
Famous investment strategist Ed Yardeni has a theory: We live in a “G-shaped” economy.
G stands for “generational” and describes a society “in which older Americans, who are among the wealthiest families, provide financial support to their younger adult children and grandchildren,” Yardeni wrote in a recent note.
“In our opinion, much of the affordability crisis in America today is affecting the younger generation, while the older generation of Baby Boomers is helping them cope.”
The “G” theme takes another popular idea in recent economic discussion and turns it on its head a bit. Many analysts have pointed to a clear “K” shaped economy, which clearly shows how the rich, represented by the top diagonal line, are doing better and better, while the underprivileged, represented by the bottom diagonal line, are seeing their fortunes falling.
Boomer wealth by the numbers
Yardeni’s theory is based on some other facts. Disposable income has been declining in recent months, even as spending continues. But as most baby boomers have retired, he pointed out, they are using their savings, not paychecks, to support their spending.
In fact, retirees now make up a record 19.5% of the civilian working-age population, so their spending and patterns of working (or not working) certainly influence the entire economy.
According to household data from the Federal Reserve, Americans age 45 and older control nearly 90% of the country’s wealth.
Boomers – those born between 1946 and 1964 – own 51% of US wealth, including real estate, stocks, pension benefits, private businesses and other assets, collectively worth $90 trillion by the end of 2025.
Of course, parents helping children – and even grandchildren – is nothing new. But the size of the boomer generation and their accumulated wealth, which is also a record high, creates what Yardeni calls “an unprecedented demographic shift with profound economic consequences.”
growing cracks in the foundation
But while Yardeni thinks intergenerational transfers could help sustain the economy into the future, some economists are beginning to be more concerned.
On May 28, the government lowered its initial forecast for economic growth in the first quarter of 2026, mainly due to lower consumer spending than initially estimated.
Troy Ludtka, senior U.S. economist at SMBC Nikko Securities America, said in an analysis after the GDP release that consumption remains higher than before the COVID-19 pandemic, making comparisons difficult, suggesting that overall, “American households are largely healthy.” But Americans are quickly falling behind on auto loans, student loans and credit card payments, Ludtka said.
“Financial strains on households became more acute in the second quarter, as a sharp rise in inflation pushed the personal savings rate down to a very low 2.6%,” Ludtka said. As gas and food prices continue to rise, spending is likely to decline, he said.