From Home Furnishing Business
Statistically Speaking: Millennials Gain Share of Consumer Spending
2018 by HFBusiness Staff in Business Strategy, Industry
As Baby Boomers (ages 53 to 71 in 2017) continue to age out of prime furniture buying years, Generation X households (ages 37 to 52) have held strong in their power as key contributors to consumer spending – despite a much smaller population size. A more affluent Generation X population paired with the sheer size of Millennials (ages 21 to 36) now fully in adulthood points to a bright future for the furniture and home furnishings industry. In 2017, Millennials accounted for 71.9 million people and are expected to surpass Baby Boomers size of 73.5 million next year (Figure 1). The 2017 Consumer Expenditure Survey from the U.S. Bureau of Labor Statistics shows the shift over the last four years in consumer spending among the five adult generations as Millennials continue to gain a greater share. This article updates and expounds on Statistically Speaking’s November 2017 article Generation X and Millennials Gaining Influence as Baby Boomers Age.
In 2017, Baby Boomers still had the highest number of households representing 34.4 percent of consumer units, compared to 26.8 percent for Generation X, and 25.1 percent for Millennials (Table A). Although Millennials are inching closer to Generation X in consumer units, the percent of all consumer spending is still over 10 percentage points higher for Gen Xers and almost 15 higher for Baby Boomers. After years of Baby Boomers controlling the majority of furniture and bedding spending, the market has now spread to Generation X and Millennials, who combined account for 56.9 percent.
As shown in Table B, Millennials have entered into adulthood and continued to form households – growing their share of consumer units. At 25.1 percent in 2017, Millennials percent of consumer units has jumped 2.2 points in just one year, while the older generations (including Generation X) decrease.
In 2017, U.S. households spent $7.8 trillion in the U.S. economy with Baby Boomers controlling 36.1 percent of all total consumer expenditures, followed by Generation X at 32.3 percent. While Millennials still control only 21.4 percent due to lower average household incomes and still smaller numbers, this generation increased its share of total spending by 3.9 percentage points 2014 to 2017 – up from 17.5 percent in 2014. On the flip side, both Generation X and Baby Boomers have decreased share as numbers rise for Millennials (Table C).
For furniture and bedding expenditures, Millennials continue to step up to spend more of their income on home furnishings than any other generation. While they still control only 24.6 percent of industry sales, the share has increased each year from 20.1 percent in 2014. Gen Xers have slipped in control down to 32.3 percent, most likely due to the smaller size of the generation, but remain close to Baby Boomers’ 34.3 percent (Table D). As Baby Boomers age out of the furniture industry, the influence of Gen Xers and Millennials will continue to grow.
The Consumer Expenditure Survey estimates mean/average consumer unit income per generation, as opposed to median income. As shown in Table E, Gen Xers have experienced the highest average income (before taxes) over the last four years – topping at $95,168 per household in 2016, the highest mean household income of any generation in history. Even with a slight dip from 2016 to $95,032 in 2017, average income for Generation X has increased 12.8 percent since 2014. Although Millennial households earned, on average, 54.2 percent less than Generation X and 28.1 percent less than Baby Boomers in 2017, average income among Millennials has increased 21.1 percent over the last four years and will continue to increase as younger Millennials enter the workforce and form households.
While mean (average) income, which differs from median income and is usually more affected by unequal distribution and tilts toward the top, shows a downturn for all generations from 2016 to 2017, the median income (middle point) from the government’s sister survey, the Current Population Survey, paints a different picture. During the same year, median household income increased 4.0 percent – from $59,039 to $61,372 per household but only 1.8 percent in real dollars. Median income estimates are not yet available at the generational level.
Although the Baby Boomer and Generation X households still earn considerably more than Millennials, the percent of total U.S. income is shifting each year in a positive direction for Millennials compared to older generations. Since 2015, Generation X has decreased its share of total income alongside Baby Boomers, while Millennials continue to grow. Income from Millennials now account for 21 percent of total U.S. income compared to 16.2 percent in 2014 (Table F).
With the highest income and an average age of 44.3, Gen Xers are the industry’s prime consumers (Table G). Now an average age of 60.2, many Baby Boomers have retired or are preparing to retire, while the average Millennial is yet to reach 30 with many earning years ahead. In fact, Millennials have now surpassed Gen Xers in the number of individuals in the U.S. workforce.
The data continues to confirm that Millennials are the most educated generation. In 2017, 73 percent of Millennials were college educated versus 70 percent of Gen Xers and 65 percent of Baby Boomers (Table H).
With higher wages and more disposable income, Generation X has consistently spent more money per household on furniture expenditures in the last four years. Mapping the CEX to the government’s national accounts through Personal Consumption Expenditures shows Generation X spent on average of $993 in 2017 on furniture and bedding which is 21 percent higher than Baby Boomers and 23 percent higher than Millennials. However, Millennial households have rapidly increased their spending – jumping an average of 6 percent a year from 2014 to 2017 (Table I).
Where do different Generations spend money?
Age and generation greatly affect what consumer items people buy and the share of a consumer’s total expenditures allotted for those items. Figure 3 illustrates a few major consumer items bought by each generation and which ones spend a higher percentage of its expenditures on those items.
As housing is a major expenditure for all consumers, Millennials are spending the most (22.5 percent) of their income on rent or mortgage payments. However, as a whole, consumers spent a smaller percentage of their total expenditures on home mortgages in 2017 compared to 2016. As they age, many Baby Boomers are paying off mortgages and simultaneously becoming the largest consumers of home maintenance, repairs and insurance.
Millennials spent more of their income eating out (6.3 percent) than any other generation, while a family-oriented Generation X spends a higher share of their dollars on entertainment compared to other generations (5.8 percent).
Vehicles and apparel were bigger ticket items in 2017 for Millennials and both Gen Xers and Millennials spent the same percentage (2.1 percent) on cellular phones and services. Not surprisingly, Baby Boomers control much of the healthcare spending, averaging 9.4 percent of their consumer spending. Down from 3.4 percent in 2016, Millennials spent less of their money on education in 2017, possibly due to an increasing availability of jobs.
Furniture spending among Millennials in 2017 bodes well for the future of the furniture industry. While each year, Millennials control a greater percentage of industry sales, they also spend a higher percentage (0.9 percent) of income on furniture than any other generation. Paired with the growing wealth of Gen Xers, the furniture industry should continue to thrive. For example, as Millennials continue to find jobs, form households, and increase wages, a 10 percent increase in spending on furniture would add another $2.6 billion to the industry.