Millennials and Generation Z have begun to drive a surge in labor participation that will potentially bolster the U.S. economy over the next two decades at least, according to a new report from Morgan Stanley.
With the U.S. population aging and demographic changes set to erode the solvency of entitlement programs, Morgan Stanley challenged some of the economic doom and gloom.
The bank calculated that the wave of younger citizens — millennials, and the generation born immediately after them — will help raise the U.S.’s potential GDP over the next 2 decades by 0.2 percent.
“A popular narrative says that with the aging of Baby Boomers, the US economy is headed south,” the bank’s analysts wrote in a 68-page report called The Blue Paper.
“While the Boomers have been exerting a drag on growth, the doom-and-gloom thesis misses the fact that America’s youth will soon relieve this downward pressure.”
Also aiding the boom is the fact that neither generation has a “gap” in values or education, according to the report, underscoring a “broadly similar” worldview and skill set.
“Roughly 70% of both cohorts plan to receive a college degree. They both value family and happiness highly and expect to have the same number of children,” the analysis said.
“This means there won’t be a generational divide when Z overtakes Y to become the largest US cohort, suggesting no hiccups in positive economic fundamentals,” Morgan Stanley said.
The wave of younger workers has all sorts of positive spillover effects on the economy, according to the bank.
As both generations come of age and grow into their earning power, Morgan Stanley wrote that the sectors poised to benefit the most include housing, banking, consumer and technology, just to name a few.
However, the forecast is not as positive in the rest of the Group of 10 (G10) major economies, though. Gen Y (or Millennials) and Gen Z will make up less of their labor force—the working-age population will expand in the U.S. and shrink in the rest of the G10.
The Blue Paper also includes tidbits on likely changes in spending habits over the next 15 years.
Driven by rising demand for rentals and the rising cost of health care, and health-related services, Morgan Stanley projected that Americans will spend more of their money on shelter and health in 15 years, and less of it on transportation and apparel.
“Gen Y+Z add up to a youth boom that we feel most economic and financial forecasts have missed,” the report concludes.
Calder McHugh is an Associate Editor at Yahoo Finance. Follow him on Twitter: @Calder_McHugh.