This document discusses how changing US demographics, specifically the aging Baby Boomer generation and coming of age Millennials, will impact the economy and stock market in coming decades. It finds that while retiring Baby Boomers will slow economic growth, Millennials are a larger population now entering their peak spending years, supplemented by Generation X, providing strong economic demand to offset declining Baby Boomer consumption. Certain industries like housing and autos are positioned to benefit from these demographic tailwinds. Student loan debt is high but should not cause a financial crisis due to key differences from the mortgage crisis. The economy is projected to grow around 2.1% annually over the next decade due to demographic factors.

1. I N V E S T M E N T S T R A T E G Y G R O U P
Boomers to Millennials
How Our Changing Demographics
Will Impact the
Economy and Stock Market

2. W W W. J A N N E Y. C O M2
Millennials are the
Key to Future Economic Growth
The peak of the baby boom generation (those
born between 1946 and 1965) was in 1981 when
boomers were 24 years old, and it’s no coincidence
that the economy and stock market had a 20-year
surge as this generation went through its peak
spending years. With the leading edge of this
group now entering retirement, the focus turns
to the Millennials (those born between 1982 and
2001) and their ability to grow the economy.
Figure 1: Comparison of 2015 Population to 1980
(Source: United Nations, Department of Economic and Social Affairs, Population Division)
Introduction
Historical data indicates a strong relationship between the age distribution of the U.S.
population and economic and stock market performance. Key demographic trends today
include the aging of the Baby Boom generation, and the coming of age for the Millennials
(sometimes called Echo-Boomers or Generation Y). Both of these trends will have a major
impact on the economy and stock market over the coming decades. This paper examines several
important consequences of our demographic trends, and identifies industries that should
benefit from our shifting demographics.
The good news is that the Millennials are a bigger
population (thanks to a little help from immigra-
tion), with the peak of this generation now 24
years old and at the beginning of their major con-
sumption years. At the end of 2012, Baby Boomers
numbered about 82.5 million. The Millennial gen-
eration is expected to be over 88 million people
by the end of 2016—about 8 million more people
than the Baby Boomers.
Figure 1 compares the demographic landscape of
1980 (just before the great bull market run of the
80s and 90s) to the projected 2015 population.
Age Group
Population
(millions)
0-4 5-9 10-14 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59- 60-64 65-69 70-74 75-79 80+
1980 2015
25
20
15
10
5
0

3. 3W W W. J A N N E Y. C O M
Three major features stand out in Figure 1:
1) The Millennials are a larger population today
than the Boomers were in 1980, and they are just
entering their peak consumption years;
2) The retiring Baby Boomers are a source of
slower economic growth, which was not present
in 1980 (see page 4, Drivers of Long-term Economic
Growth); and
3) There is a large population group of approxi-
mately 63 million between these two, known as
Generation X. This group is currently in their
peak consumption years and will remain there for
quite some time.
The combination of Millennials entering peak
consumption years, supplemented by Genera-
tion X that is already there, provides a strong
source of economic demand. This demand should
more than offset the declining consumption of
the retiring Baby Boomers. Figure 2 shows how
consumption varies with age. Combining the
demographics and consumer spending by age,
analysis shows that consumer spending should
grow about 1.2% per year. This increase only
includes the benefit of more households, which
offsets the drag due to a higher percentage of
households in the 65+ age group. In addition, con-
sumer spending should also grow as family income
increases with an improving economy.
The Congressional Budget Office (CBO) looks at
this from the viewpoint of economic growth po-
tential, and they summarize the impact of today’s
demographics with growth projections for the
next decade. The CBO projects that the economy
can grow by 2.1% per year, on average, over the
next decade. See Drivers of Long-term Economic
Growth, for a more detailed discussion.
Figure 2: Consumer Spending by Age Group
(Source: 2012 Consumer Expenditure Survey – BLS)
Millennials Present
Investment Opportunities
Millennials will make up the largest population
cohort the U.S. has ever seen, and the consumer
spending of the Millennials will be a key driver
for equities. We identify several reasons for opti-
mism below.
Millennials Are Headed Toward Higher Income:
Employment opportunities get better with
age, especially with a college degree. The un-
employment rate drops dramatically for 25- to
34-year-olds, especially for those with a college
degree (see page 5, Importance of Student Loans to
Millennials). Entering your thirties often means
marriage and better pay. Federal Reserve data
shows that average household income and net
worth rises the most (percentage- and dollar-wise)
when transitioning from the under-35 to the 35–44
age group. A large factor is marriage, and the sta-
bility of having a household with dual incomes.
Favorable Housing Demographics:
Just as household income has a dramatic jump
as young adults transition from their 20s to their
30s, so does home ownership. The median age
of a first-time homebuyer is 31, and the biggest

4. W W W. J A N N E Y. C O M4
percentage point increase in the home ownership
rate occurs when transitioning from households
aged 25–29 (36.8% home ownership rate) to
those aged 30–34 (51.6% home ownership rate).
Figure 3 illustrates the results of a Millennial
profiling survey, and clearly shows the group is
interested in spending on housing (after they pay
off their student loans—see page 5, Importance
of Student Loans to Millennials). Survey data also
shows that buying a home is the most important
long-term financial goal of Millennials.
Figure 3: What Would You Spend More On, if Your Income Increased?
(Source: Ned Davis Research Survey of 526 Millennials)
Unlike some other durables, home ownership goes
up with age (see Figure 4). This means that despite
aging Baby Boomers, housing should have demo-
graphic tailwinds. This is in addition to significant
pent-up demand for housing as a result of the
Great Recession (see Figure 5), and very attractive
affordability due to low interest rates.
Autos should also benefit and have additional tail-
winds due to good affordability (low interest rates),
a record vehicle age of over 11 years, and signifi-
cant pent-up demand since the Great Recession
(see Figure 6). Millennials are also very interested
in purchasing cars, as shown in Figure 3.
Drivers of Long-term
Economic Growth
In addition to the all-important
productivity growth (getting more output
per worker), demographic factors have
a major influence on the ability of an
economy to grow—they determine how
many workers are available to produce
goods and services in an economy.
The CBO projects that, over the next
decade, the economy can grow by 2.1%
per year, which is down from the 3.3%
potential GDP growth rate seen from 1950
until 2013. This lower potential growth
rate is driven by a lower growth rate in the
potential labor force—from 1.5% over
1950–2013 to 0.5% from 2014–2024.
The slowdown is anticipated to occur
primarily because of the aging and
retirement of large numbers of baby
boomers, and because women’s
participation in the labor force has
leveled off since the late 1990s—after
having risen substantially throughout
the prior three decades. Immigration
projections also play a role in the
potential size of the labor force.
Worker productivity is assumed to increase
by 1.6% per year over the next decade,
and is in line with the historical averages
of the last 60 years. Other factors affecting
economic growth include the quantity
and quality of available natural resources,
including land.

5. 5W W W. J A N N E Y. C O M
The benefits of a college education are clearly
demonstrated in unemployment rates and average
earnings. The unemployment rate for college
grads stood at 3.4% in 4Q 2013, while the rate for
a high school degree was 7.3%. Average annual
earnings for a high school grad are only $32,493,
while bachelor degree holders earn $59,415
and advanced degree holders earn $87,981.
The benefits of a college degree have also been
magnified since the financial crisis.
However, large student debt burdens for today’s
Millennials is a growing concern. Student loans
outstanding almost tripled between 2004 and 2012,
and the aggregate student loan balance is now
greater than $1 trillion. Student debt now exceeds
aggregate auto loan, credit card, and home-equity
debt balances—making student loans the second
largest debt of U.S. households (about 8% of
household debt), following mortgages.
According to the Federal Reserve’s most recent
comprehensive student loan report, the average
amount of student loan debt stood at $24,218,
but the median borrower only owed $13,662. The
difference reflects borrowers with especially large
amounts of student loan debt. 3.7% of borrowers
had six-figure student loan debt, and 0.5% had debt
over $200,000 (dominated by those with medicine
and law degrees, where potential income is higher).
40% of borrowers had balances of less than $10,000.
Recent analysis by the New York Federal Reserve
confirms that student loan debt may lessen other
forms of borrowing. The Fed’s work shows a
significant impact, since the financial crisis, on
home and auto borrowing for those who have
student debt relative to those who don’t. Other
surveys show that student debt and a lack of savings
are an issue for Millennial consumption. However,
Millennials have a strong desire to own homes and
cars—and will eventually be in a position to do so.
Student Loans Should Not Cause
The Next Financial Crisis:
With student loan debt levels, delinquencies,
and defaults on the rise, there is concern about
another financial crisis similar to housing in 2008.
Fortunately, there are major differences with the
housing crisis, and the systemic financial market
risks posed by student loans are probably overstated.
At their 2008 peak, residential mortgages totaled
some $10.6 trillion (according to the Fed’s Flow
of Funds report) versus some $0.97 trillion in
student loans currently outstanding (one-tenth the
size). At the onset of the crisis, mortgages without
any (implicit or explicit) government guarantee
totaled $5.2 trillion. In addition, the credit risk
was multiplied many times over by the presence of
$450 billion in exotic financial instruments, such
as cash-collateralized debt obligations (CDOs) and
extremely large (multi-trillion-dollar) positions
in synthetic credit default swaps and CDOs. In
comparison, private parties own the credit risk on
only $150 billion of private student loans (PSLs)
that are not guaranteed by the U.S. government.
In a low-delinquency/default environment,
student lending is a big money-making business
for the government. Given that the Department of
Education can borrow at low Treasury rates, larger
loan volumes produce greater earnings. Indeed,
for new loans issued in fiscal year 2013, even after
accounting for the fairly high projected default
rates cited above, the U.S. government expects to
earn $5.7 billion.
However, any rise in student loan delinquency/
default rates will be systemic in the sense that
the burdens of the losses will be borne broadly
by U.S. taxpayers.
Importance of Student Loans to Millennials

6. W W W. J A N N E Y. C O M6
Specific categories of Housing, including home
maintenance, household furnishings and major
appliances, should also benefit, with the key reason
being that the home ownership rate goes up with
age. There are also some key categories like Autos
that should have a fairly neutral impact from demo-
graphics, because a large portion of the Baby Boom
population will remain in the 55–64 age group this
decade. Finally, if Baby Boomers are living longer
and working longer, the transition to “retirement
spending years” may not happen right at age 65. If
70 becomes the new retirement age, the peak of the
Baby Boom will not make that transition until 2027.
Baby Boomers will need to protect purchasing
power, while Millennials are well aware of the need
to save for their future.
This points to the need for investment advice and
financial products for both population groups, and
there are many financial institutions and insur-
ance companies that are well-positioned to provide
advice and products for both age groups.
Figure 4: Home Ownership Rate Increases With Age
While Vehicle Ownership Remains Steady
(Source: Federal Reserve Board Survey of Consumer Finances)
Baby Boomer Demographic
Headwinds and Opportunities
Since income and spending decreases as retire-
ment is approached, reduced Baby Boomer
spending will likely be a drag on overall consumer
spending. However, this will not occur for every
category, and certain sectors will benefit from an
aging population. Overall health care spending
increases with age (Figure 7) and health insurance,
drugs, and medical supplies are major beneficia-
ries. Drug retailers are also very well-positioned,
and we have a long-term positive bias toward them.
Figure 7: Health Care Spending Increases with Age
(Source: Janney ISG and BLS)
Figure 5: Significant Pent-up Demand for
Housing since the Great Recession
(Source: Janney ISG, Bloomberg)
(Source: x)
Figure 6: Significant Pent-up Demand for
Autos since the Great Recession
(Source: Janney ISG, Bloomberg)

7. 7W W W. J A N N E Y. C O M
Figure 8: Industries and companies that are well-positioned to capitalize on our changing demographics
Company Name
May 21, 2014
Ticker
Forward
P/E
Earnings
Growth
Dividend
Yield
Credit
Rating
Notes Coverage
Consumer Discretionary
Housing and Auto spending are beneficiaries of both Millennial and Baby Boomer demographics. Value retailers are top destinations
for Millennials apparel and grocery shopping.
HOME DEPOT INC HD 17.15 15.82 2.10 A
Solid e-commerce site and benefits from pent-up
household formation.
S&P/CS/J
LOWE’S COS INC LOW 16.60 16.58 1.59 A-
Solid e-commerce site and benefits from pent-up
household formation.
S&P/CS/J
FORD MOTOR CO F 10.99 9.78 2.67 BBB-
Premier U.S. automotive company with valuation
and dividend support.
S&P
WAL-MART STORES INC WMT 14.31 8.58 4.40 AA Millennials prefer WMT for groceries and apparel. S&P/CS/J
AMAZON.COM INC AMZN 78.43 38.38 - AA-
Millennials do the majority of their shopping online
with AMZN.
S&P/CS/J
COMCAST CORP-CLASS A CMCSA 17.39 11.40 1.58 A-
Benefits from increased household formation and
increased connectivity.
S&P/J
WALT DISNEY CO/THE DIS 19.55 11.37 1.05 A Movies rank first for Millennials entertainment.
They will also start families soon.
S&P/J
Consumer Staples
Drug Retailers are a major beneficiary of increased spending by aging Baby Boomers. They also benefit from newly insured Affordable
Care Act consumers and a further expansion into clinical services. A wave of higher-profit generics are also set to come on the market
in 2015.
CVS CAREMARK CORP CVS 16.79 13.93 1.24 BBB+ Largest pharmacy health care provider in U.S. S&P/CS
WALGREEN CO WAG 18.64 14.13 1.77 BBB Largest U.S. retail drug chain based on revenues. S&P/CS
Financials
The banks are healthy and will benefit from providing credit for housing, autos, and other consumer durables. Retiring Boomers also
need financial advice. Millennials are well aware of their need to save and also stand to inherit significant sums.
JPMORGAN CHASE & CO JPM 9.64 5.14 2.81 A
Well positioned for mortgage lending and providing
financial advice.
S&P/CS
WELLS FARGO & CO WFC 12.22 11.94 2.42 A+
Well positioned for mortgage lending and providing
financial advice.
S&P/CS
METLIFE INC MET 8.74 8.05 2.19 A-
Largest U.S. life insurer. Well positioned in growing
retirement and savings market.
S&P/CS/J
PRUDENTIAL FINANCIAL INC PRU 8.51 10.67 2.29 A
Provides a wide range of insurance and investment
management products.
S&P/CS/J
Health Care
Baby Boomers will account for significant health care expenditures over the coming years. Janney’s Investment Strategy Group favors
the Health Care Equipment and Managed Care industries.
JOHNSON & JOHNSON JNJ 17.03 6.95 2.61 AAA
AAA rated blue chip selling Pharmaceuticals and
Medical Devices to aging Boomers.
S&P/CS
MEDTRONIC INC MDT 14.75 7.39 1.87 AA-
Very diverse product line, strong cash flow,
valuation and dividend support.
S&P/CS
MYLAN INC MYL 12.68 9.98 - BBB-
Leading generics manufacturer - generics will be in
high demand with aging Boomers.
S&P
UNITEDHEALTH GROUP INC UNH 13.73 9.86 1.44 A
Leading healthcare provider market position with
product diversity.
S&P/CS
ISHARES U.S. MEDICAL
DEVICES
IHI - - - -
Cap-weighted basket of 40 equipment manufacturers and
distributors.
ISHARES U.S. HEALTHCARE
PROV
IHF - - - - Broad-based exposure to U.S. health care providers.
Definitions:
Forward P/E - Current stock price divided by EPS consensus estimate for the next four quarters.
Earnings Growth Estimate - Mean broker estimate of the compounded annual growth rate of the operating eps over the company’s next full business cycle (typically 3-5 years).
Dividend Yield - Trailing 12 month dividend per share divided by share price
Credit Rating - Rating assigned by Standard & Poor’s to the long term obligations of the issuer if repaid in the local currency of the issuer.
(Source: Janney ISG, Bloomberg)

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