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https://content.fortune.com/wp-content/uploads/2023/06/GettyImages-1503701958-e1688045807831.jpg?w=2048Predicting business cycles is hard, just ask the experts. For over a year now, Wall Street economists, billionaire investors, and even former Federal Reserve officials have repeatedly predicted an impending economic downturn. But so far, the labor market and consumer spending have remained resilient, inflation is slowly fading, and first quarter GDP growth was just revised up to 2%.
Many have been surprised by the economy’s ability to cope with consistent headwinds over the past few years, from rising interest rates and the Ukraine war to high inflation and banking instability, but not Edward Yardeni. Last June, the veteran market watcher and founder of Yardeni Research told Bloomberg that despite Wall Street’s worries, a recession was far from “inevitable” and inflation was set to fall. And in January of this year, he said that the outlook for the global economy was “improving” in a follow up interview.
While some economists warn that consumers are spending the extra savings they built up during the pandemic, which could mean the long-predicted recession is merely delayed, Yardeni isn’t so sure.
“The common explanation for the no-show recession despite the 500bps hike in the federal funds rate is that consumers were still spending their excess savings from the pandemic. But once this cash is spent over the rest of this year, the thinking goes, a consumer-led recession is likely in 2024,” he wrote in a Wednesday note to clients. “I disagree.”
Yardeni, an economist by training who previously served as chief investment strategist at both Prudential Financial and Deutsche Bank, now points to another positive sign for the economy—one that could keep consumer spending, which makes up 70% of U.S. GDP, elevated for years to come despite stubborn inflation.
“Consumers’ excess savings of roughly $0.5 trillion currently is dwarfed by the net worth held by the Baby Boom generation that is retiring,” he explained. “They have just started to spend it. Their progeny undoubtedly expects to inherit some of that wealth and therefore can save less.”
Baby boomers, defined as those born between 1946 and 1964, had a net worth of $74.8 trillion at the end of the first quarter. Nearly $19 trillion of that wealth was held in real estate, including equity in personal homes. But Yardeni said that boomers have “the bulk” of their excess savings “parked in liquid assets,” including $8.9 trillion in bank deposits and money market funds alone, which should enable them to keep spending even in a slowing economy.
It’s not just baby boomers who have cash stacked away either. The silent generation, which the Fed defines as those born before 1946, boasted a net worth of nearly $18 trillion in the first quarter. And Americans’ overall net worth has increased 34% over the past three years alone, from $104.2 trillion in the first quarter of 2020 to $140.6 trillion in the first quarter of this year.
Yardeni noted that, on top of “fast-rising wages and salaries,” Americans’ have been able to leverage their increasing net worth to earn some serious passive income. In the first quarter, U.S. consumers posted interest income of $1.8 trillion, dividend income of $1.7 trillion, proprietors’ income (income from owning a business) of $1.9 trillion, rental income of $0.9 trillion, and Social Security income of $1.3 trillion, according to data from the Bureau of Economic Analysis.
“Consumers may run out of their excess pandemic savings by the end of this year, but they have lots of other sources of purchasing power,” Yardeni said of the data.
