Major bridge in popular travel destination Porto, Portugal
The baby boomer demographic has driven many of the major financial trends of the last several decades. We shouldn’t expect this to end, and it has implications for oil demand, specifically that it may be higher than expected going forward. This trend is already occurring and is potentially one of the reasons that high gasoline prices and some recessionary data points have not dampened demand to the extent one might expect.
When baby boomers originally entered the workforce, it helped drive down inflation. They simply produced more than they consumed. We now have the opposite. Retirees are growing, and they are consuming not producing, with the workforce that supports their consumption getting smaller and smaller. This is a workforce that is needed to produce oil and gas. In 2021 the Petroleum Services Association of Canada (PSAC) referenced that they had more open unfilled positions amongst members than ever before. This labor shortage story has been covered in detail though, and I would rather focus on how a growing retiree base is going to drive the consumption of energy and services vs goods.
In 1970, only 10% of the United States population was retired and eligible for retirement benefits. Today that number has grown to approximately 17%. The primary goal of this group in retirement is travel, as per retirement surveys, and they often have income tied to inflation in some way. This combination makes travel more of a certainty both financially and psychologically.
Retirees wanting to travel is simple. They have time, want to visit loved ones, and have trips they’ve been saving for. This is deferred energy consumption that is now taking place amongst an increasingly large group. There has also been a switch amongst retirees where an increased number now desire to live in more rural areas, and this has increased post-COVID. Rural areas have a higher per capita gasoline consumption. Again, it’s very simple, you often have less public transit and more destinations are not accessible via walking.
The ability to finance this consumption may also be less impacted than other members of the population as many sources of income in retirement are indexed to inflation, providing increases that are not showing up in the wages of the general population. A recent example is the cost-of-living adjustment for social security benefits increasing by 8.7% in 2023. This should mean that this group is less price dependent, and that is exactly what the data is showing. Multiple third parties, such as the Wandering RV, reference a similar trend, with their numbers specifically having 57% of boomers determining their trips based on budgets compared to 81% for Gen Z.
The percentage of retirees in the general population is growing and their number one goal is travel. They made these plans long ago, so they are likely less responsive to small price changes. Retirements also accelerated during COVID which means the trend is here earlier, and stronger than expected. This trend can be expected to make demand, and inflation, more resilient.
