Source: Andi_Graf via Pixabay.

Just in case you missed it, the benchmark S&P 500 crossed the psychological 2,000 barrier for the first time in its history this week. By achieving this mark, the broad-based index has now tripled from the lows set back in March 2009.

The U.S. economy has similarly put its lows in the rearview mirror. The nation's unemployment rate has fallen considerably from its peak of 10% in 2009 to 6.2% last month, manufacturing activity and factory orders are expanding robustly, housing prices are rising, and lending rates remain low. This provides the impetus for businesses to expand and consumers to refinance debts and/or purchase goods and services on credit at historically attractive rates.

However, there's more to the consumer spending picture than initially meets the eye.

The consumer spending conundrum
As you can see below, real personal consumption has been tracking steadily higher for much of the past 15 years, according to the St. Louis Federal Reserve Bank. Even the worst recession of the past seven decades knocked less than $300 billion off seasonally adjusted monthly personal-consumption rates. 

Source: St. Louis Federal Reserve Bank via the U.S. Department of Commerce and Bureau of Economic Analysis. 

Yet a Gallup survey released two weeks ago could signify that consumer spending may heading toward a rough patch.

Gallup's survey on consumer spending did note some bright spots. For example, 45% of consumers are spending more today than they did at the same time last year, and only 18% are spending less. This would be good news for the U.S. economy and businesses, as consumer spending accounts for almost 70% of national GDP.

But if you look beyond the top-line spending figures and dig into which groups of people are spending, which groups aren't, and which goods and services are driving growth in consumer expenditures, the situation does not appear nearly as optimistic as the monthly data would imply.

Right idea, wrong demographic
Based on Gallup's findings, as you can see below, all generations are spending more now than they did during the corresponding period of 2013.

"Compared to the same time (past 4 weeks) a year ago, would you say you are spending more money, spending less money, or about the same amount of money?"


Spending More

Spending Less




Generation X



Baby boomers






Source: Gallup.

Increased spending is a good sign for economic growth, but notice which group has the highest percentage spending more: millennials.

When Gallup expanded its line of questioning further to include consumers' willingness to spend their money and what specific items they were buying, things became even clearer. While I'd encourage you to read the full basis of Gallup's questioning here, the gist of the findings was that millennials are more willing to spend their money than baby boomers and traditionalists (retirees) and that the items all consumers are spending more on are nondiscretionary.

In other words, people are still paying for what they need, such as utilities, healthcare, and mortgage or rent costs, but they're not spending much more on things they want, such as clothing and entertainment. 

Why is this a problem?
This is worrisome for a number of reasons.

Source: Wonderlane via Flickr.

To begin with, though basic-needs goods and services like utilities have strong pricing power, the expectation that prices will increase in these industries is already factored into economic growth estimates. Where organic economic growth is more often derived, and what has traditionally led the U.S. economy out of past recessions, is consumers' willingness to buy discretionary items.

Discretionary goods and services often have beefier profit margins, which lead to increased profitability for the companies that provide them. Gallup's survey suggests that consumers aren't especially eager to buy these high-margin offerings at the moment.

Source: Carol Pyles via Flickr.

What I find to be the bigger concern, though, is that millennials are leading the charge in willingness to spend. While it shouldn't be surprising that younger adults are less adept at saving money, it's a worrisome trend, because millennials make less money in the first place and have far less to fall back on if the economy weakens. Retired traditionalists and baby boomers possess the vast majority of discretionary income in this country, but the responses Gallup received indicate that those with far less disposable income and savings are the one's propping up discretionary goods and services companies.

Furthermore, as Bankrate noted in its June Financial Security Index (a monthly survey that compares aspects of consumers' personal finances to the year-ago period), the vast majority of the country isn't adequately prepared for an economic downturn. Just 23% of respondents in its study had at least six months' worth of savings available to cover their expenses. Another 24% had only enough emergency savings to cover up to three months' worth of expenses, while 26% reported having no savings at all. Of those who had at least six months' worth of accessible savings, 36% were retirees, while just 16% were between the ages of 18 and 29.

Tying things together
Altogether, this doesn't paint an encouraging picture of consumer spending or the sustainability of spending increases moving forward. It would appear that the biggest sticking points for boomers and traditionalists to overcome, per Bankrate's study, are job insecurity fears and retirees' concerns about their own financial situations. It's anyone's guess how these fears can be addressed, but I'd suggest that the current path of consumer spending is unsustainable over the long term.