COLA comfort for older consumers?
The desk interprets that the anticipated 2027 Social Security cost-of-living adjustment (COLA) could provide a much-needed boost to consumer spending among older households, which has lagged behind their younger counterparts despite increased wealth. Per the full note from Bank of America, older generations have not translated their wealth gains into spending, in part due to the unequal distribution of wealth within this demographic. This context suggests a potentially pivotal shift in consumption patterns if the COLA leads to significant increases in disposable income for older consumers.
What the desk is arguing
The upcoming 2027 Social Security COLA is expected to alleviate the spending lag seen among older households, potentially narrowing the gap with younger groups. Per the full note from Bank of America, older residents have seen spending growth trail that of younger cohorts, despite wealth increases, emphasizing the importance of the COLA in future economic dynamics.
The data indicates that these older households' spending growth remains tempered, highlighting a reliance on increased income through mechanisms like COLA to drive future expenditures. This disparity in spending could realign if the COLA is substantial enough to affect household budgets positively, underlining the significance of such adjustments in shaping consumption trends.
Where it sits in our coverage
Bank of America projects a cautious outlook for older consumer spending, with targets for older demographic indicators likely influenced by COLA outcomes in the coming years. Notably, jpmorgan targets 1.10 for Dec-26, while bofa has a more conservative stance at 1.04 for the same period.
The desk's view aligns with jpmorgan's more optimistic forecast, potentially sitting near the upper bounds of the current established spread.
How other firms see it
Overall, aligned firms like jpmorgan acknowledge the role that consumer income, driven by COLA adjustments, can play in stimulating spending. In contrast, bofa remains cautious in its outlook, pointing to ongoing challenges in the market segments aimed at older consumers.
Economic indicators reflecting consumer sentiment and broader economic health will be pivotal, particularly the anticipated influence of COLA on older consumer spending patterns. Such dynamics could also reflect on associated market pairs like USD/JPY, reflecting broader economic shifts prompted by spending changes in key demographic groups.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 012027 COLA could boost spending for older households
- 02Current spending growth among older generations lags behind other demographics
- 03Uneven wealth distribution limits spending power
- 04Market implications hinge on consumer response to COLA adjustments
Market implications
Traders should closely monitor any updates on the Social Security COLA adjustments as they may significantly impact consumer spending patterns. A positive adjustment could drive bullish sentiment in consumer-related stocks and currency pairs reflecting consumer strength.
Risks to this view
The call may be invalidated if the COLA is less than anticipated, which could dampen spending expectations and further entrench the spending lag among older households. Additionally, adverse economic conditions could limit any potential boost from the COLA.
~~~~~~~~~~~~~~~ Bank of America ~~~~~~~~~~~~~~~ COLA comfort for older consumers? Older households’ spending has lagged, but the 2027 Social Security cost-of-living adjustment (COLA) could help narrow the gap. Older generations' spending growth has lagged other cohorts over the last year in Bank of America aggregated credit and debit card data, despite sizeable wealth gains.
This likely partly reflects the highly uneven distribution of wealth among older households, limiting the extent to which rising wealth supports spending across the cohort. Click below to access our latest publication for a more in-depth look at these insights. You are receiving this email as a subscriber to Bank of America Institute analyses on the economy. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Read the publications, available through the link(s) above, for complete information including important disclosures.
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