Welcome to Thoughts on the Market. I'm Lauren Castle, Morgan Stanley's branded

apparel and footwear analyst and as part of this special series I'll be

discussing the work my colleagues and I have done on the intersection of Chief

U.S. economist Ellen Zetner's millennial and Genzi demographic work and the impact on U.S. consumer

discretionary spending. So let's get to it. As Ellen's team noted, there is a huge demographic bubble moving through the economy.

One would think that discretionary spending would rise as total consumption, the largest component of GDP,

accelerates as millennials and Gen Z

agent to their prime working and spending years.

But for the all-important discretionary spending category,

we don't think that's necessarily true.

Our forecast is for a slightly less optimistic discretionary spending outlook as growth from Gen Z and millennials or what we refer to as Gen Y appear unlikely to offset

decelerating consumer spending over the medium term, driven by an aging baby boomer population.

Let's break that down. First, the 45 to 74 year old age demographic, which typically

spend more than the population average are declining.

On top of that, the 75 plus age cohort which tends to spend less

on discretionary items with each passing year are getting larger.

Both will likely weigh significantly on discretionary spending over the next 10 years.

So if overall discretionary spending may not rise, it's critical to identify which

sub-sectors should benefit from accelerating Gen Z and Gen Y spending.

Our analysis suggests home improvement, lodging, auto maintenance, and food at home

are relatively better positioned given changing U.S. demographics,

while home furnishings, food away from home, and apparel

...