How Demographic Shifts May Drive Big Changes in Spending
If you are a job seeker, you have probably got more of a chance walking dogs for a living than teaching kids in the labor market of the coming decade. That is one of the implicit messages in a new report from the New York-based Conference Board on the changing composition of consumer demand—the main driver of the economy—over the next 10 years.
The report, “The Impact of Demographic Trends on Consumer Spending,” examines the size and age distribution of the future population, how spending patterns will change as people age, and provides perspective on how population growth trends are likely to impact future spending. The report’s focus is on demographics, both the well-known aging of the Baby Boom generation and the less-publicized baby bust that began during the Great Recession as fertility rates dropped.
Spending on pets is forecast to rise strongly as boomers, perhaps pining for children who have flown the coop, shower their attention and money on new-found furry friends. Outlays on education will lag, though, as the potential student population comprising five- to 24-year-olds grows very slowly due to the downsized, post-Millennial Generation Z.
The study projects spending increases based purely on demographics, including the growth of the population. The figures do not factor in the impact of rising wages and wealth over the period. As such, the projected 8.1% upturn in total household expenditures from 2015 to 2025 probably understates the increase that will actually happen.
It is no surprise to see healthcare expenditures surging as the number of Americans between the ages of 70 and 84 spikes by 50%. But spending on books, newspapers, and other reading materials will also boom as the growing ranks of retirees—currently increasing by about 1.2 million a year, according to the report—have more time for themselves. They will also shell out more on home repairs as they become less willing or able to do maintenance tasks on their own, according to the report. The aging of the overall population results in smaller increases in spending on a variety of other goods and services, for example restaurant meals and apparel, to name just two, that are more popular with younger Americans.
The U.S. is likely to experience large variation in consumption growth across states and metropolitan statistical areas (MSAs) due to population trends. While consumption in states like Florida, Texas, Arizona, and Nevada that draw retirees is expected to grow more than twice as fast as the national average, states like New York and Illinois will barely see any growth at all. Rhode Island and Michigan will actually experience negative consumption growth. Consumption in retirement destinations is likely to grow especially fast, with many of these areas expected to experience over 30% consumption growth due to population growth alone. In these locations, spending on health care is likely to be especially high.
Businesses can be proactive in anticipation of these major changes, and improve future planning according to the report. “More accurate intelligence about future demand is an important advantage over competitors,” says Gad Levanon, one of the report’s authors. “Though exact projections of demand are never certain, businesses should grasp the opportunity to use what is known about demographic trends to make better business decisions.”
Citations
- http://bloom.bg/2lr69ry Bloomberg
- http://bit.ly/2limLQ5 – The Conference Board
Kraft-Heinz Bid for Unilever: A Meeting of Cheap Money and Industrial Logic?
U.S. food company Kraft Heinz Co. recently made a surprise $143 billion offer for Unilever Plc in a bid to build a global consumer goods giant, although it was initially rejected by the maker of Lipton tea and Dove soap. A combination would be the third-biggest takeover in history and the largest acquisition of a UK-based company. It would bring together some of the world’s best known brands, from toothpaste to ice creams, and combine Kraft’s strength in the United States with Unilever’s in Europe and Asia. Whether or not a merger of the two companies ever takes place, the offer by Kraft Heinz to buy Unilever brings to light some major issues that could presage more consolidation within the packaged food industry.
The global packaged food industry is grappling with slowing growth, new competition from upstart brands, deflation in developed markets and more health-conscious consumers. Unilever, which has struggled recently amid slowing growth and currency fluctuations, saw its shares tumble 4.5% on Jan. 26, its worst day in nearly a year, when the company reported lower-than-expected fourth-quarter sales. Unilever has also been hit by a slowdown in emerging markets, which it and other consumer companies have long relied on for growth, as well as in its home market, where consumers have been rattled after “Brexit,” Britain’s decision to leave the European Union last year. Brexit pushed down the value of the pound, raising the cost of producing consumer goods in Britain and straining relations between the country’s retailers and suppliers.
For Kraft, its move comes as low interest rates and cheap debt have fueled big cross-border deals, making it the busiest start to the year for merger and acquisition (M&A) activity on record. Still, investors will look at Kraft-Heinz’s own track record of boosting sales when evaluating whether they can help Unilever cope with its own slowed growth. Kraft’s sales fell 3.8% to $6.86 billion in the fourth quarter ending Dec. 31, and its U.S. sales, which account for more than 70% of total sales, fell 3.1% to $4.84 billion.
Although Kraft is smaller than Unilever, with a market value of $106 billion, it is 50.9% owned by Buffett’s Berkshire Hathaway Inc. and 3G Capital, which also controls Anheuser-Busch InBev. 3G, known for driving profits through aggressive cost cutting, has orchestrated a string of big deals rocking the food and drink industry, including Anheuser-Busch InBev’s takeover of SABMiller and the combination of Kraft and Heinz.
A deal would offer opportunities to combine marketing, manufacturing and distribution in addition to cutting costs, but some industry analysts said Kraft might not want Unilever’s household and personal goods brands and could spin them off. “This is cheap money meeting industrial logic,” said Steve Clayton, manager of the HL Select UK Shares fund at Hargreaves Lansdown. “Kraft Heinz is attempting a massive push on the fast forward button. To acquire the sheer scale of brands that Unilever represents through one-off acquisitions could take decades,” Clayton added.
Britain’s largest union, Unite, represents employees at Unilever, according to its website. Unite urged Unilever to continue fending off the takeover attempt to prevent job losses. Unilever employs 168,000 people and generates roughly 17% of its revenue in the United States compared with Kraft-Heinz, which generates roughly 78% of its revenue in America.
A recent wave of cross-border deals in Europe is leaving British businesses vulnerable to possible job cuts. Peugeot SA’s proposed acquisition of General Motors Co.’s Opel business may eventually lead to heavy restructuring at the firm, which employs 4,500 people in Britain, sources said.
Citations
- http://reut.rs/2m3BsWc – Reuters
- http://cnb.cx/2kQVq6k – CNBC
The Good News Is . . .
- Reuters reported that homebuilding was up 10.5% compared to January 2016. Permits for future construction jumped 4.6% in January to a rate of 1.29 million units, the highest level since November 2015. Economists had forecast building permits rising to a 1.23 million pace. The housing market recovery is being driven by a strong labor market, which is boosting employment opportunities for young people and supporting household formation.
- T-Mobile US Inc., a leading provider of wireless telecommunications in the U.S., reported earnings of $0.45 per share, an increase of 32.4% over year-earlier earnings of $0.34 per share. The firm’s earnings topped the consensus estimate of analysts by $0.16. The company reported revenues of $10.2 billion, an increase of 24.4%. Management attributed the results to strong growth in its postpaid phone business segment.
- Allergan has announced that it will pay $2.5 billion for Zeltiq Aesthetics and its diet-avoiding, fat-freezing technology. In addition to aesthetic drugs, Allergan has, since the start of 2016, bought or licensed gastrointestinal drugs, gene therapy for eye disease, and long-shot treatments for Alzheimer’s and other neurological disease. Zeltiq may be a safer bet. The treatment fits well with Allergan’s other cosmetic surgery assets, such as Botox and Kybella, which reduces chin fat. Also, Zeltiq customers pay out of their own pockets, rather than go through insurers and government payers, which demand big discounts for more essential drugs.
Citations
- http://reut.rs/2l72w9A – Reuters
- http://cnb.cx/2lwnm3s – CNBC
- http://t-mo.co/2kUDd8b – T-Mobile Inc.
- http://nyti.ms/2lYRvp2 – NY Times Dealbook
Planning Tips
Tips on When It’s Time to Change Your Credit Card
An estimated 32 million credit card holders have not updated their preferred card in at least a decade, while 21 million others have never switched cards, according to a new report from CreditCards.com. The site based its analysis on a survey of 1,003 adults conducted in January 2017. No matter how you feel about your current card, it is a good idea to periodically review offers on the market to make sure you are not missing out. Below are some factors to use when evaluating whether it is time to change your credit card. Be sure to consult with your advisor to help make the best credit card choices for your situation.
Payment habits – Cardholders who are carrying a balance, even occasionally, should be on the hunt for a card with a better rate to save on interest paid. If you have excellent credit, there are plenty of cards on the market that start out offering zero percent rates on purchases or balance transfers.
Credit health – An improvement in your credit score could entitle you to better interest rates and terms than you might have been eligible for when you last hunted for a card.
Annual fee- If you are paying one, reassess each year before your card anniversary, when the fee is charged to your card. Make sure the benefits are still competitive, compared with what other reward cards are offering—and what they are charging for those perks. You should also analyze whether you are still getting your money’s worth by actually using those benefits.
A major purchase – Lucrative sign-up bonuses can be worth several hundred dollars, but they often require spending a set amount by a certain date after opening the card. If you have a big purchase or vacation on the horizon, that is a good opportunity to leverage that spending. Depending on the rewards on offer, you may even be able to use the bonus to cut the cost of that purchase or trip.
Rewards – If you are holding on to an old card, you might be earning a lower rate of rewards compared to newer cards on the market. For example, a decade ago, 1% back was the norm for cash-back cards; today, a handful offer 1.5% or better on all purchases.
Citations
- http://bit.ly/2lwANQB – CreditCards.com
- http://bit.ly/2luFSbU – Investopedia
- http://cnb.cx/2lOVIPv – CNBC
- http://bit.ly/2kKxOzo – InvestorGuide.com
- http://bit.ly/2lijiB2 – LowCards.com
