The funeral industry was long viewed as being the most recession-proof industry in the world outside of basic staples like food.  As Ben Franklin told us, along with taxes, death is the only real certainty in life.  But in this most unusual of recessions, even the business of burying the dead is suffering.  Consider this headline from today’s FT: “Death is certain, but it is far from recession-proof.”

The FT writes,

However grand or modest, everyone must have a funeral and publicly listed “death care providers” offer a way to profit from nature taking its course.

Yet even this $15bn a year business has not been recession-proof. Operating earnings of the four largest vertically integrated operators of funeral homes and cemeteries fell by between 10 and 38 per cent over the past six months, compared with a year earlier.

The FT tells us that survivors of the deceased are not the ones pinching pennies.  It is the deceased themselves, while still alive, that are cutting back on prepayments.   There is an entire sub-industry dedicated to prepaying future funerals and investing the proceeds.

At any rate, the Great Recession has only exacerbated a much bigger and more significant trend:  there are fewer people dying.   This is great news, of course (unless you’re a funeral director).   But it has nothing to do with Americans living longer or being healthier.

As you might expect, demographics provide the answer.  We are currently experiencing a “death trough.”   The Boomers are still far too young to be meeting their Maker en masse.  At the same time, the bulk of the Greatest Generation (the World War II generation) has already left us.   This means that the generation now in their golden years is the much smaller Silent Generation, the generation that was too young for WWII but too old for Vietnam.

Fewer people born means fewer people to die — and less business for funeral operators.

The funeral industry will have another decade or two of tight conditions.   But when the Boomers begin to enter their 70s and 80s, business should boom again.

Will many Boomers, reminiscing about their hippie past, opt to be cremated and have their ashes scattered at Woodstock?  Maybe.  But the Boomer generation is so large, it won’t matter.  Even if a smaller percentage of Boomers opt for traditional burial, the shear number of Boomers will insure that business will be good.

In life, the Baby Boomers have been the proverbial “pig passing through a python,” making fortunes for marketers smart enough anticipate what they will buy next.  And the same will be true in death.

Charles Sizemore, CFA
Co-author of the recently-published Boom or Bust: Understanding and Profiting from a Changing Consumer Economy

Gallup recently posted some interesting findings about spending cutbacks by age (see chart below).

Surprisingly, the Boomers did not make the biggest cuts.  That distinction belongs to Generation X.  Gallup writes,

Baby boomers’ self-reported average daily spending of $64 in 2009 is down sharply from an average of $98 in 2008. But baby boomers — the largest generational group of Americans — are not alone in pulling back on their consumption, as all generations show significant declines from last year. Generation X has reported the greatest spending on average in both years, and is averaging $71 per day so far in 2009, down from $110 in 2008.

We find it interesting that, according to Gallup’s numbers, the average Gen Xer spends more per day than the average Baby Boomer.  This would seem to fly in the face of the U.S. Government Consumer Expenditure Survey data that we use in our models that suggests that spending peaks at around age 48.  Gen X is composed of people currently in their mid-30s to mid-40s…quite a few years below the peak number.  Our best guess is that this numbers include only “discretionary” purchases and do not include large items like mortgage payments, car payments, etc.  It is entirely possible that Gen X spends more on lunch and lattes, but considerably less in total spending.   For now, we will continue to use the Consumer Expenditure numbers, though we’d like to look a little deeper at Gallup’s methodology.

At any rate, Gallup does sound a bit like HS Dent in a few places:

 ”With baby boomers constituting the largest bloc of U.S. consumers, their spending habits have a proportionately greater effect on the economy, given that consumer spending accounts for about two-thirds of the total gross domestic product.”

And

“Gallup has found the presence of young children in the household to be a major predictor of reported spending (in 2008 and 2009, the difference in reported average spending between parents with children under age 18 and non-parents was about $20).”

Charles Sizemore, CFA

Co-author of the recently-published Boom or Bust: Understanding and Profiting from a Changing Consumer Economy

In its August report, the Employee Benefit Research Institute published new data on the account balances of America’s retirement savers, summarized in the chart below.  The results are, shall we say, disappointing.Giving American savers the benefit of the doubt, let’s ignore the bear-market-ravaged 2009 figures and focus instead on 2007.  After five full years of strong bull markets in virtually ALL asset classes, the average 45-54 year old had only $50,000 in his 401(k) retirement account.  55-64-year olds, having the benefit of another decade’s worth of saving, had managed to accumulate an average of $81,000.

There are a couple points worth making here.  First, this illustrates what HS Dent has been saying for years: Americans do not begin to seriously save for retirement until their late 40s to early 50s, when their children have begun to leave the nest.  The problem with this is obvious.  Waiting so late to save and invest, middle-aged investors miss out on two decades or more of compounding.   Try as you may, you cannot make up for two decades of lost compounding by saving more aggressively in your 50s.  The math just doesn’t work out.

Meanwhile, Deutsche Bank estimates that half of all American mortgages will be underwater on their mortgages by 2011, meaning that the house isn’t an asset at all, but a liability.

With little home equity and 401(k) balances embarrassingly small, the retiring Baby Boomers will have to depend on other savings they might have (which are also pitifully small) or, more likely, their Social Security checks or private pensions.  This doesn’t end well.

Charles Sizemore, CFACo-author of the recently-published Boom or Bust: Understanding and Profiting from a Changing Consumer Economy

The National Center for Health Statistics released birth data for 2008, and to the surprise of some, births acutally fell compared to 2007 — by 68,000.   The New York Times writes, “In 2007, the number of births in the United States broke a 50-year-old record high, set during the baby boom.  But last year, births began to decline nationwide, by nearly 2 percent, according to provisional figures released last week.”

Interestingly, the birth rate shrank the most in the states hardest hit by the recession — California, Florida, and Arizona — giving credence to the belief that the decline was due to the bad economy.  After all, what would-be parent would want to have a baby knowing that they might lose their job…or home!

We agree with this analysis, though we would add one important caveat: don’t forget demographics! Read the rest of this entry »

I rarely take the time to read the “Business Life” section of the Financial Times.  It’s the one section that I consider “soft” fluff journalism in a newspaper that usually prints high-quality “hard” news.   (I see little value in reading about water cooler etiquette, new standards of office political correctness, and the “next new thing” MBA buzzwords that sound remarkably similar to the previous batch of “next new thing” MBA buzzwords…I got more than enough of this drivel in grad school, thank you very much.)

At any rate, in scanning the section, I did come across an interesting and worthwhile article on the interaction in the workplace between the Baby Boomers and their children, the Echo Boomers (or Gen Y).   In “A to Z of Generation Y Attitudes,” Alison Maitland analyzes reports by the US Center for Work-Life Policy and London Business School titled “Bookend Generations” and “The Reflexive Generation,” respectively, and finds that the Echo Boomers, despite all of their supposed tech sophistication, are not too unlike the Baby Boomers.  Both generations tend to be rather unorthodox and free thinking relative to Generation X, the much smaller generation sandwiched between them.   The attitudes of Generation X tend to be more conventional, as their smaller numbers naturally make them more conformist.

In this sense, the coming years will be defined by “bookend” dynamics in which the both the older Boomers and the younger Echo Boomers will set the social and career standards with Gen X being lost in the middle.

Charles Sizemore, CFA

Co-author of the recently-published Boom or Bust: Understanding and Profiting from a Changing Consumer Economy

The Wall Street Journal reported today that several high profile Baby Boomers are doing something that few in their generation have ever done: stepping back and considering the consequences of their actions: “Boomers to This Year’s Grads: We Are Really, Really Sorry.”

The Journal writes, “In 1969, baby boomers took podiums at college graduations around the country and pledged to redefine the world in their image. Forty years later, they have, and now they are apologizing for it. Their collective advice for the class of 2009: Don’t be like us.” Read the rest of this entry »

We found an editorial in the usually gentlemanly Financial Times that was downright caustic.  We don’t usually comment on angry rants, but this one is somewhat instructive in that it could be a sign of things to come.  

We have heard about “generational warfare” for decades now, but now, in the wake of the worst bear market and recession since the Great Depression, it might finally be upon us.  The Baby Boomers have always had charmed lives of sorts.  Born into the affluent, suburban, post-war America of the 1940s and 50s, they were spoiled practically from birth with a sense of entitlement.  

Despite their size as a generation — the largest in history — as a group they have many of the characteristics of only children, such as a predisposition to self-indulgence and a deep belief that they are (and should be!) the center of attention.  Read the rest of this entry »

“The Maker of Twinkies Is Fresh From Bankruptcy”

New York Times,February 5, 2009

It wasn’t much of a news story when it happened in 2004, but Interstate Bakeries, the maker of the iconic Twinkie, filed for bankruptcy protection after suffering a prolonged sales drought. 

Business writers were quick to blame changing consumer tastes for the Twinkie’s downfall, specifically mentioning fads such as the low-carb Atkins and South Beach Diets.  This argument never made a lot of sense to us.  We found it highly doubtful that serial fad dieters, of which there are no doubt millions, were the Americans who rejected the Twinkie in lieu of bun-less hamburgers (without fries, of course).  Even before these diets became household names, health-conscious dieters were not likely to have been among the shoppers browsing the junk food aisles for Twinkies and Ho-hos.  It did not take a “revelation” from Dr. Atkins to make people realize that these sugary sweets are not healthy!

Read the rest of this entry »

The Economist reports that Caribbean tourism is down by as much as a third.  The Americans and Europeans that filled the hotel rooms in years past are worried about the future, and an extended beach holiday is not something many can justify at the moment. 

None of this is surprising, of course.   What we found interesting was one particular comment about the targeted clientele for beach homes:

Lonely Beaches

The Economist, January 31, 2009

The scarcity of tourists has halted some ambitious expansion plans, and is a blow to fragile economies…. Since the 1990s, most big Caribbean tourism projects have been planned around second (or third) homes for baby boomers. [Emphasis HS Dent]  Grand designs show a sprawl of houses and apartments arrayed around a small but pricey hotel, a golf course and marina, and perhaps a casino. Most of the development is financed by sales of unbuilt real estate, much of it as timeshares. Plunging housing markets and the credit crunch have put paid to all that.

Read the rest of this entry »

We recently picked up a copy of Gustave le Bon’s classic, The Crowd.   While the book is an excellent study of group behavior, what we found most interesting was the back cover (see graphic below).   Read the rest of this entry »