Younger Generations Lead Consumer Sentiment Shift, 'Given Up' on Institutions

SPEAKER_1 (0:00)

Do you want to shift our attention back to the consumer, though? Bring Sam back into the conversation, and welcome in our next guest. Joining us now, Eddie Yoon, the co-founder of Category Pirates. Eddie, great to have you on the show. We got weak consumer sentiment data this morning, perhaps not quite as weak as expected, but certainly not positive, a four-month low.

But we have inflation expectations jumping up to 4.6%. So as you look at those things side by side, how are you viewing the consumer and how the consumer is viewing the economy right now?

Eddie Yoon (0:31)

Great question. I think the consumer is throwing in the towel. And what I mean by that is they have given up that our leaders, the big businesses, the institutions, can take care of them and take care of inflation. I think the reason why I say that is that they look at gas prices, tariffs, taxes. These are all things that the consumer cannot control. They've been waiting for companies, leadership to step up and do something about that and it hasn't happened yet. And as a result, contrast in large institutions is the lowest it's been in probably the second lowest per gallop. And so I think what's going to happen is the consumer is kind of looking at more drastic means to kind of maintain their spending, e.g. they're going to do their version of a corporate restructuring, which is called relocation.

SPEAKER_3 (1:14)

Oh, interesting. I do want to just pick up though, it's something our previous guests mentioned and something I think about quite often because I'm sure we all know someone like this, but there's a big gap in how people feel right now, Eddie, and what they're doing. Because we talk about these companies and the resilience of the consumer as to why margins look good, why they're showing good fundamentals. I mean, why is there such a divergence?

Eddie Yoon (1:39)

I think you can explain it through generational cohorts. I mean, you're not seeing this kind of relocation phenomena that we're going to talk about as much with kind of boomers, exers and some of the over generations. But what you're looking at is kind of the young generation, Gen Zers, who A, are less likely to be married, less likely to own a house, less likely to have children, and more likely to remote work. Guess what? They are more mobile than ever, and they are moving to a place where taxes are less. Maybe there's no state income tax or cost of living is far lower than it needs to be where they are today. And that's what we're seeing the movement is at that younger generation and that's why you're seeing some divergence in consumers.

SPEAKER_1 (2:16)

And so as we look at this relocation theory of how they're dealing with this lack of confidence here, California ranked last in this U-Haul one-way moving index. Then we saw some of the southern states, Texas, Florida, the Carolinas up near the top of the list. What is that telling us, Eddie, about how Americans are feeling about where they can get the best combination of affordability and opportunity?

Eddie Yoon (2:45)

Yeah, I think that it means that young people are doing their homework, you know? I mean, you've heard about the fire movement, you know, financial independence, retire early, and that's, this is a cousin of that. But people are kind of figuring out like, well, if I want a 20% raise, what's the best way that I can do it? I can ask my boss, I can go out and be my own entrepreneur, or I can move into a place that doesn't have an income tax from a state perspective or city that has less of that, and or a place that has lower housing. Now, here's the part that's kind of interesting about this is Gen Z is the most mobile generation of any cohort. One in three relocations are a Gen Z person. That's really kind of fascinating from a guy that likes weird data, right?

And part of what we've written about at Category Pirates is that, I actually think the non-obvious ripple effects is that this stems from things like the proposed California billionaire tax, which you might think, what does that have to do with anybody else in the country? But what you want to do is not follow where the billionaires are moving, you want to follow their money. And there were money meaning data centers, which is a bit controversial. A lot of the news is portraying people as saying like, oh, they're up in arms about data centers, it's not popular. And when you go to the places that actually have them, you see kind of the opposite effect. In Quincy, Washington, as an example, tax revenue from data centers, which they've had for about 20 years, went from about 6 million to 47 million. They have a new high school, new police, new fire department as a result of that. And in Richland, Paris, because of the data center that Metta put in there, teachers got a $50,000 bonus up from $10,000, which is the norm. And so the reality on the ground is that data centers, I predict, within a 12 to 18 month period, is going to have a pretty dramatic turnaround in public perception. When the people that are actually experiencing it first time, not the theory of it, but the reality of it are saying, this is great, I want to move here. Because in Richland, Paris, Louisiana, the average price of a house went from about $105,000 to $295,000 in two and a half years. And so you want to be early on that trend and not late.