Millennials

U.S. SECTOR STRATEGY
Ned Davis
Research
Group
PUBLISHED QUARTERLY  JANUARY 29, 2015FEATURED REPORT - CONSUMER CORNER
Please see important disclosures at the end of this report. www.ndr.com | Periodical | Issue #IFFR2015012911
Millennials?
What’s the Matter
with
PAT TSCHOSIK, CFA, CMT
Consumer Strategist
CHAY NORBOM, CFA
Senior Consumer Analyst

NED DAVIS RESEARCH GROUP U.S. Sector Strategy: Featured Report | JANUARY 29, 2015
www.ndr.com | Periodical | Issue #IFFR2015012912Please see important disclosures at the end of this report.
TABLE OF CONTENTS
Key Reasons for Sluggish Millennial Household
Formation
Attending College��5-7
Delayed Marriage��8-9
Lack of Housing Supply��10
Lack of Mortgage Credit��11
Lower Incomes and Assets��12-16
WhenWill Millennial Household Formation Rise?
It All Comes Down to Employment��17-20
Investment Implications from Millennials and
Household Formation
Spending Categories and Sub-Industries Most
Impacted by Millennials��21-23
7 Predictions Related to the Millennial
Generation��24
REFERENCED CHART LINKS
INTRODUCTION
Most of the 88 million Millennials (27% of U.S.), born 1980-1999,
are traveling along the journey to adulthood, ranging from graduat-
ing from high school to starting a family.
Millennial behavior is critical to overall spending and the econo-
my. This large group is sure to spur new and unique spending trends
and companies, which should offset some of the demographic drag
of downsizing and retiring boomers. But when will that be?
In this report, we will look at some of the hurdles that have
slowed Millennials on their young adult journey, and try to deter-
mine when they will start lifting household formation, the fuel of
consumer spending. We will compare the Millennials' journey to the
Gen-X young adult trek, which took place about 20 years ago, in or-
der to gauge Millennials' progress. Last, we will discuss investment
opportunities related to this generation as the majority enter and
advance into their 30’s over the next eight years.
IFFR201501291L_C
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Gen-X vs. Millennial Employment and Homeownership Rates
IFFR201501291L_C
Gen-X vs. Millennial Employment and Homeownership Rates
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
77
78
79
80
81
82
74
75
76
77
78
79
80
81
82
83
84
Source: Bureau of Labor Statistics
Gen-X Employment-Population Ratio (25-34 Years-Old): 01/31/1990 - 05/31/2000 (Scale Left)
Millennial Employment-Population Ratio (25-34 Years-Old): 02/29/2008 - 12/31/2019 (Scale Right)
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
37.5
38.0
38.5
39.0
39.5
40.0
37.0
37.5
38.0
38.5
39.0
39.5
40.0
40.5
41.0
41.5
42.0
42.5
43.0
43.5
Source: US Census Bureau
Gen-X Homeownership Rate (34 Years-Old Under): 01/31/1990 - 05/31/2000 (Scale Left)
Millennial Homeownership Rate (34 Years-Old Under): 02/29/2008 - 12/31/2019 (Scale Right)
% OF YOUNG ADULTS
EMPLOYED TRENDING HIGHER
FOR GEN-X, HOMEOWNERSHIP PICKED
UP 2 YEARS AFTER EMPLOYMENT. WILL
MILLENNIALS FOLLOW A SIMILAR PATH?
E-mail Us

EXECUTIVE SUMMARY
„„ In contrast to our previous report which compared Millennials to Baby Boomers, this report compares
Millennials to Gen-X.
„„ Millennials are on a similar young-adult path to what Gen-X was on roughly 20 years ago. Whereas Gen-X
births peaked in 1970, the Millennial birth rate peaked in 1990.
„„ Millennials, however, have been bogged down on the road to household formation. We explore key rea-
sons, including more Millennials going to college, living at home longer, and delaying marriage.
„„ Unlike many, we do not pin the generation’s problems on student loan debt. While Millennials clearly
have larger student loan balances than prior generations, overall debt is moderate. Income is really
what is lagging.
„„ We do not believe there is a “cultural shift” for Millennials toward not wanting cars, homes, or marriage.
The reason for delay is financial, not desire. When incomes improve, the rest will follow.
„„ Delayed household formation, lagging income, and lower net worth are all symptoms of a weak job
market. The good news is that employment looks to be on the upswing.
„„ We believe we have seen a bottom in the employment-population ratio, income / net worth and the
homeownership rate for young adults.
„„ Within the next two years, we expect to see household formation start to rise significantly, given pent-up
demand for 3 million households and improving employment.
„„ Over the next eight years, Millennials will be pouring into their 30’s, and spending more on housing,
transportation, groceries, restaurants, apparel, personal services, cell phones, education, and en-
tertainment. Sub-industries leveraged to household formation should benefit most.

PEAK MILLENNIAL - BORN 1990PEAK GEN-XER - BORN 1970
Stock Market Crash
Teen Unemployment Avg. 15.3%
Start 90's Recession
Teen Unemployment Falls Below 18%
College Enrollment Jumps 7% in 2 Years
Home Sales Bottom (3.0 mil)
Start Gulf War
Young Adult Homeownership
Rate Bottoms (37.3%)
Young Adult Homeownership
Rate Jumps 180 bps in 2 Years
Gen-X Peak (women) Reach Median Age of Marriage
Young Adult Employment-Population Ratio rises
+150 bps Since Recession End
Births Start to Rise
Technology Bubble
Births Jump 3% in 2 Years
Start '01 Recession
9/11 Attacks
Iraq War
Young Adult Homeownership Rate Peaks (43.1%)
Housing Bubble
Start Great Recession
AIG, Lehman Bros. Collapse
Teen Unemployment Avg. 18.7%
Young Adult Homeownership Rate Bottoms? (36.0e)
Teen Unemployment Falls Below 18%
Young Adult Employment-Population Ratio rises
+150 bps Since Recession End
Housing Bust
Home Sales Bottom (3.3 mil)
Millennial Peak (women) Reach
Median Age of Marriage
2-Year Young Adult Homeownership Rate Jumps?
Next Recession Starts?
Births Start to Rise?
2-Year Birth Rate Jumps?
A GENERATIONAL JOURNEY OF YOUNG ADULTS
1987
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
2007
2024
2023
2022
2021
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
AGE
17
34
33
32
31
30
29
28
27
26
25
24
23
22
21
20
19
18

REASONS FOR SLUGGISH
MILLENNIALS HOUSEHOLD
FORMATION
ATTENDING COLLEGE
Attending college slows household
formation because many students live at
home while going to school. According
to Pew Research, 18 to 24-year-olds en-
rolled in college were much more likely
to be living at home than those not in
college (66% versus 50%). And Millen-
nials have poured into college like no
other generation. In 2013, over 40%
of college-age students (ages 18 to 24)
were enrolled in college, compared to
just over 30% in 1993 for Gen-X at com-
parable age.
IFFR201501291A_C
Percentage of 18- to 24-Year-Olds in College YearlyData1955-12-31to2013-12-31(LogScale)
IFFR201501291A_C
Percentage of 18- to 24-Year-Olds in College YearlyData1955-12-31to2013-12-31(LogScale)
1959 1964 1969 1974 1979 1984 1989 1994 1999 2004 2009
42
40
38
35
32
30
28
25
22
20
18
15
12
42
40
38
35
32
30
28
25
22
20
18
15
12Source: BureauofLaborStatistics,U.S.CensusBureau,CurrentPopulationSurvey
% of 18- to 24-Year-Olds in College (2013-12-31=40.8%)
IFFR201501291B_C
Percentage of High School Graduates Enrolled in College YearlyData1993-12-31to2013-12-31(LogScale)
IFFR201501291B_C
Percentage of High School Graduates Enrolled in College YearlyData1993-12-31to2013-12-31(LogScale)
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
70
69
68
67
66
65
64
63
62
70
69
68
67
66
65
64
63
62
Source: BureauofLaborStatistics,U.S.DepartmentofLabor(VisitedJanuary19,2015)
% of 16- to 24-Year-Old High School Graduates Enrolled in College (2013-12-31=65.9%)
Based on 16- to 24-year-olds enrolled in college during October
of the year they graduated from high school
If you think of it in terms of supply
and demand, it was no surprise that col-
lege tuition skyrocketed. The peak of the
Millennial generation, in terms of U.S.
births, was born in 1990. A record level
of high school graduates enrolled in
college (70.1%) in 2009 when that peak
was 19 years old. This was the“perfect
storm”, with the peak of the nation’s
largest generation attending college
at the highest enrollment rate ever.
MILLENNIALS
SET RECORD HIGH!
PEAK OF
MILLENNIALS
GOING TO
COLLEGE AT
A RECORD
RATE!

Millennials have been told that
they have to go to school to earn de-
cent pay, and the statistics certainly
show that a higher education leads
to higher income.
IFFR201501291C_C
Median Annual Earnings by Educational Attainment
IFFR201501291C_C
Median Annual Earnings by Educational Attainment
$0 $10,000 $20,000 $30,000 $40,000 $50,000 $60,000 $70,000
AsofQ32014.Basedon25-year-oldsandolder.AnnualizedWeeklyEarnings=averageofpreviousfourquarters.Sources:U.S.BureauofLaborStatistics,U.S.Census,CurrentPopulationSurvey
Less Than
High School
High School Diploma
or Equivalent
Some College or
Associate's Degree
Bachelor's
Degree
Advanced
Degree
All Workers
$25,064
$34,515
$39,351
$57,187
$72,137
$43,446
IFFR201501291D_C
Growth in Occupations by Educational Attainment
(Projected % Change from 2012 to 2022)
IFFR201501291D_C
Growth in Occupations by Educational Attainment
(Projected % Change from 2012 to 2022)
Less Than High
School
High School
Diploma or
Equivalent
Some College,
No Degree
Postsecondary
Non-degree
Award
Associate's
Degree
Bachelor's
Degree
Master's
Degree
Doctoral or
Professional
Degree
Average,
All Occupations
U.S.BureauofLaborStatistics,EmploymentProjectionsProgram
5%
10%
15%
20%
5%
10%
15%
20%
10.9%
7.9%
11.3%
15.6%
17.6%
12.1%
18.4%
16.0%
10.8%
They have also likely been told that
jobs requiring a degree are projected
to grow faster than jobs not requir-
ing a degree, which is also true. In the
chart at left, Bureau of Labor Statistics
(BLS) Employment Projections fore-
casted that between 2012 and 2022,
jobs requiring a master’s degree
would grow fastest (18.4%), while
those requiring only a high school di-
ploma would grow slowest (7.9%).
MORE EDUCATION
= MORE MONEY
SLOWEST
GROWING
FASTEST GROWING

However, the Millennials likely have not been told their de-
gree was not needed. The reality is that only about one-third
of all new jobs will require postsecondary education for entry1
.
A look at BLS projections for job growth by education between
2012 and 2022 on an absolute (not a percent) basis shows most
new jobs require only a high school diploma or less. Of the 15.6
million new jobs projected to be created over this time frame, 8.8
million (56.2%) will require only a high school diploma or lower.
Still, Millennials continue to bring more and more college
degrees into the workforce. If we assume the current rate of de-
grees per population aged 25+ holds through 2022, we will see
an increase of 5.4 million bachelor degrees, yet the BLS projects
growth of only 3.1 million jobs requiring bachelor degrees.
You could also assume that an additional 2 million+ people
with a master's degree will likely compete for those jobs requir-
ing a bachelor’s degree since so few new jobs will require a mas-
ter's degree. We see two key implications. The first is that job
competition, wage pressures, and underemployment may
persist for an extended period of time, even for college-
educated Millennials. Secondly, we believe many will consider
a more entrepreneurial trek for their career path in search of
higher pay.
IFFR201501291E_C
Growth in Educational Attainment and Corresponding Jobs
(Projected Thousands Added from 2012 to 2022)
IFFR201501291E_C
Growth in Educational Attainment and Corresponding Jobs
(Projected Thousands Added from 2012 to 2022)
Less Than
High School
High School Diploma
or Equivalent
Some College,
No Degree
Associate's
Degree
Bachelor's
Degree
Master's
Degree
Doctoral or
Professional Degree
IncreaseInDegreesprojectionassumes2014ratioofdegrees/populationholdsin2022.Sources:U.S.BureauofLabor,EmploymentProjectionsProgram,U.S.CensusBureau,NedDavisResearch.
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
5,500
6,000
6,500
7,000
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
5,500
6,000
6,500
7,000
1,298
4,158
5,508
4,631
3,775
225
2,851
1,046
5,348
3,144
2,849
449
1,172
638
Increase In Degrees
New Jobs Requiring Degree
UNDERSUPPLY
OVERSUPPLY

DELAYED MARRIAGE
Marriage has historically been a key
driver of household formation. Holly-
wood loves the setting where the young
man or woman is going to get married
and has to move out of the apartment,
leaving their college roommates and life-
style behind. But that doesn’t seem to be
a common occurrence for many Millenni-
als. Currently, only about one-quarter
of all Millennials are married. Compare
that marriage rate to Gen-X just twenty
yearsagoanditis1200basispointslower!
IFFR201501291F_C
Percentage of Married Young Adults YearlyData1962-12-31to2013-12-31(LogScale)
IFFR201501291F_C
Percentage of Married Young Adults YearlyData1962-12-31to2013-12-31(LogScale)
1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
65
62
60
58
55
52
50
48
45
42
40
38
35
32
30
28
65
62
60
58
55
52
50
48
45
42
40
38
35
32
30
28
Source: MiriamKing,StevenRuggles,J.TrentAlexander,SarahFlood,KatieGenadek,MatthewB.Schroeder,BrandonTrampe,andRebeccaVick.
IntegratedPublicUseMicrodataSeries,CurrentPopulationSurvey:Version3.0.[Machine-readabledatabase].Minneapolis:UniversityofMinnesota,2010
% of Married Young Adults (Ages 18-31) (2013-12-31=26.7%)
IFFR201501291G_C
Median Age at First Marriage YearlyData1947-12-31to2022-12-31(LogScale)
IFFR201501291G_C
Median Age at First Marriage YearlyData1947-12-31to2022-12-31(LogScale)
1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020
31
30
29
28
27
26
25
24
23
22
21
20
31
30
29
28
27
26
25
24
23
22
21
20
Source: U.S.CensusBureau,CurrentPopulationSurvey,AccessedNov.2014,AnnualSocialandEconomicSupplements,2011andearlier
Men
Women
Shading = NDR estimates for 2014-2022 based on marriage age
since the end of the recession in 2009.
The average age of first marriage for
women has jumped a whole year since
2007, going from 25.6 to 26.6 years old in
2013. The jump for men over that same
time frame has been even larger, go-
ing from 27.5 to 29.0. This is important
because of the link between marriage
and household formation. Unmarried
Millennials are much more likely than
married Millennials to be living with
their parents (47% versus 3%)2
. We are
guessing not many young adults want to
pop the question “Would you marry me,
and live in my parent’s basement?”
35% - 40%
MARRIED
FOR GEN-X
MILLENNIALS
APPROACHING 25%!
2017:
MILLENNIAL
PEAK (WOMEN)
REACH MEDIAN AGE
OF MARRIAGE (27)

FIRST COMES LOVE, THEN COMES MARRIAGE, THEN…
Remember the line from the “Sitting in the Tree” play-
ground taunt “first comes love, then comes marriage, then
comes the baby in the baby carriage”? For the most part, that
was the pattern of Baby Boomers in the 1980s. The median
age of first marriage for women had trended up over time but,
in general, it was in the range of 22 to 24 years old in the 1980s.
The median age of first-time mothers was about nine months
after that.
For Millennials, however, the median age of first marriage
is now about nine months older than the median age of
first-time mothers (chart below). Also seen in the chart, the
percent of unmarried mothers has skyrocketed from just
over 20% in 1980 to a run rate of over 40% this expansion.
According to the CDC, Millennial women aged 20–24 were the
main driver of this high rate, accounting for 37% of all non-
marital births.
Unfortunately, there seems to be a socio-economic driv-
er at work here. Births to unmarried mothers with less than
a high school diploma are occurring at a rate more than six
times the rate of unmarried mothers with a college degree
(83% versus 13%)3
. Delayed marriage for college-educated
women has delayed married mother births, therefore giving
more weight to the less educated (and more unmarried) births
of the Millennial generation.
es
cs
MR’s
h
are
oth
and
ing
ces.
oth
nd
ities,
es
he
s on
s.
Crossover in Median Age at First Marriage
and First Birth: Thirty Years of Change
Americans increasingly delay family formation, meaning they marry or become a parent at later ages.
This profile combines data from the U.S. Census Bureau’s Current Population Survey and the Center
for Disease Control’s National Vital Statistics to investigate the trends in women’s median age at first
marriage and median age at first birth since 1980. The median age at first birth exceeded the age at first
marriage until 1991, and today women are entering marriage at increasingly later ages than they are
entering motherhood.
Sources:
U.S. Census Bureau, Current Population Survey, March and Annual Social and Economic Supplements, 2012 and
earlier.
Centers for Disease Control and Prevention. National Center for Health Statistics. VitalStats. http://www.cdc.gov/
nchs/vitalstats.htm. [March 2013].
Martin JA, Hamilton BE, Ventura SJ, et al. Births: Final data for 2009. National vital statistics reports; vol 60 no 1.
R
les
0
10
20
30
40
50
60
70
80
90
100
20
21
22
23
24
25
26
27
28
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
Percentage
Ageinyears
Crossover in Median Age at First Marriage and First Birth: Rising
Proportion of Births to Unmarried Women, 1980-Present
Proportion of births to unmarried women
Women's median age at first marriage
Women's median age at first birth
Julia Arroyo, Krista K. Payne, Susan L. Brown, Wendy D. Manning
Arroyo, J., Payne, K. K., Brown, S. L., Manning, W. D. (2013).
Crossover in Median Age at First Marriage and First Birth: Thirty Years of Change (FP-13-06).
National Center for Family Marriage Research.
Retrieved from http://ncfmr.bgsu.edu/pdf/family_profiles/file129368.pdf
BIRTH THEN MARRIAGE
RECORD HIGH
MARRIAGE THEN BIRTH

LACK OF HOUSING SUPPLY
We believe it would be a different sto-
ry for household formation if there were
significantly more vacant rentals and
homes for sale. A larger supply would
mean more readily available affordable
housing, and make the decision to leave
the parents’ house easier. Instead, va-
cancy rates are at their lowest level in
13 years, pressuring rents higher -- the
last thing Millennials need.
Given the weak financial situation of
Millennials (discussed on pages 12-16),
and that multi-family construction is sig-
nificantly outpacing single-family con-
struction, we assume most Millennials
will first move into apartments and con-
dos before buying single-family homes.
And there is hope on the multi-unit
supply front. Seen in the chart at right,
the NAHB Multifamily Production Index
is back to 2004-2005 peak levels, and the
Multifamily Vacancy Index bottomed in
2012 and continues to rise.
Quarterly Data 3/31/2003 - 9/30/2014
(E247H)
Starts Rising
Starts Falling
9/30/2014 = 54.518
21
24
27
30
33
36
39
42
45
48
51
54
57
60
18
21
24
27
30
33
36
39
42
45
48
51
54
57
60
More Vacancies
Fewer Vacancies
9/30/2014 = 41.3
Source: NAHB Quarterly Survey of Builders and Property Managers30
32
34
36
38
40
42
44
46
48
50
52
54
56
58
60
62
64
66
68
30
32
34
36
38
40
42
44
46
48
50
52
54
56
58
60
62
64
66
68
1
2003
2 3 4 1
2004
2 3 4 1
2005
2 3 4 1
2006
2 3 4 1
2007
2 3 4 1
2008
2 3 4 1
2009
2 3 4 1
2010
2 3 4 1
2011
2 3 4 1
2012
2 3 4 1
2013
2 3 4 1
2014
2 3
NAHB Multifamily Production Index (MPI)
NAHB Multifamily Vacancy Index (MVI)
Copyright 2014 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved.
.www.ndr.com/vendorinfo/. For data vendor disclaimers refer towww.ndr.com/copyright.htmlSee NDR Disclaimer at
©
© Freddie Mac
-0.4
0.0
0.4
0.8
1.2
1.6
2.0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Excess for-Rent Inventory
Excess for-Sale Inventory
21
Vacant housing oversupply
Source: Freddie Mac calculations using U.S. Census Bureau data. Negative values reflect undersupply. The under/oversupply of vacant housing was estimated based on the average
vacancy rate from 1994Q1 to 2003Q4. 2014 data as of September 30, 2014.
Excess Vacant Homes
(Numbers in Millions)
-0.2
VACANT HOUSING IN SHORT SUPPLY
MULTIFAMILY PRODUCTION HIGH
VACANCIES
STARTING TO
RISE

LACK OF MORTGAGE CREDIT
There is no doubt that even if Millennials were ready to pur-
chase a home, it is still very difficult to get a loan. The good
news is that the government is aware of the problem, and is trying
to do something to help the younger and less affluent population
buy housing, primarily through FHA loans.
Joe Kalish pointed out three factors that should help in his
recent outlook on housing. First, the Federal Housing Authority
(FHA) announced it would cut its annual mortgage insurance pre-
mium by 50 basis points to 0.85%. Second, the Federal Housing
FinanceAgency(FHFA)reduceditsminimumdownpaymentfrom
5% to 3%. Last, a new FICO score credit model should increase
scores because it excludes late/missing payments for a debt that
has been settled and gives less weight to unpaid medical bills – a
likely benefit for many Millennials. This lift would be on top of the
benefit of the FHA reducing its minimum credit score from 640 to
580 in 2011. You can see in the chart below that the average FHA
credit score for purchases has finally started to head down, a
trend we expect to continue.
IFFR201501291Q_C
FHA Home Purchase Average Credit Scores QuarterlyData2006-12-31to2014-09-30(LogScale)
IFFR201501291Q_C
FHA Home Purchase Average Credit Scores QuarterlyData2006-12-31to2014-09-30(LogScale)
Dec
2007
Mar Jun Sep Dec
2008
Mar Jun Sep Dec
2009
Mar Jun Sep Dec
2010
Mar Jun Sep Dec
2011
Mar Jun Sep Dec
2012
Mar Jun Sep Dec
2013
Mar Jun Sep Dec
2014
Mar Jun Sep
627
631
635
638
642
646
649
653
657
661
665
668
672
676
680
684
688
692
696
700
704
627
631
635
638
642
646
649
653
657
661
665
668
672
676
680
684
688
692
696
700
704
Source: U.S.DepartmentofHUD/FHA,October2014.Creditscoresarecobrandedbetweenthethreemajorcreditrepositories(Equifax,Experian,TransUnion)
andFairIsaacCorporation(FICO).Valuescanrangefrom300to850.
Average Borrower Credit Scores on FHA Home Purchase Loans (2014-09-30=680)
FINALLY EXTENDING CREDIT TO
LOWER SCORES SHOULD HELP
FIRST-TIME BUYERS

LOWER INCOMES AND ASSETS
If we had to point to one cause for the jump in college
attendance, living at home, not getting married, and overall
weak household formation for Millennials, it is the lack of a
decent-paying job. The Federal Reserve Board (FRB) Triennial
survey4
, released in September of 2014, revealed many interest-
ing stats about young households under the age of 35. The first
and most striking is that the Millennials' weak job situation
is certainly reflected by low income. The chart below shows
median income in 2013 dollars, so the incomes are on an apples-
to-apples comparable basis. It is almost depressing to see that
not only did median income fall from 2010 to 2013, it’s at the
lowest level going back to 1989.
IFFR201501291M_C
Median Pre-Tax Income
(Head of Household Age 35)
IFFR201501291M_C
Median Pre-Tax Income
(Head of Household Age 35)
1989 1992 1995 1998 2001 2004 2007 2010 2013
Source:FederalReserveTriennialSurveyofConsumerFinances.Valuesarein2013dollars.
30,000
35,000
40,000
45,000
30,000
35,000
40,000
45,000
$37,700
$40,000
$38,900
$39,200
$43,900
$40,500
$42,000
$37,600
$35,300
COMPARABLE
GEN-X INCOME
MILLENNIAL
INCOME

Unlike many, we do not blame student loans for the core
of Millennials' problems. We see the generation more as vic-
tims of a terrible labor market and spiking education costs. In
the chart below, notice that from 2010 to 2013, the percent
of households with student loan debt increased by 160 basis
points, but the median debt level spiked 23.7%! From Decem-
ber 2010 to December 2013, the CPI for tuition jumped 12.0%,
nearly double the overall CPI rate, and many college tuitions
were up significantly more than that.
IFFR201501291N_C
©Copyright2015NedDavisResearch,Inc.Furtherdistributionprohibitedwithoutpriorpermission.AllRightsReserved.
SeeNDRDisclaimerat www.ndr.com/copyright.html Fordatavendordisclaimersreferto www.ndr.com/vendorinfo/
StudentLoanDebtforYoungAdults
(HeadofHouseholdAge35)
IFFR201501291N_C
StudentLoanDebtforYoungAdults
1989 1992 1995 1998 2001 2004 2007 2010 2013
Source:FederalReserveTriennialSurveyofConsumerFinances.Valuesarein2013dollars.
0
2
5
8
10
12
15
18
20
22
25
28
30
32
35
38
40
42
%HouseholdswithStudentLoans
6,000
7,000
8,000
9,000
10,000
11,000
12,000
13,000
14,000
15,000
16,000
17,000
MedianStudentDebt($)
17.1%
24.3% 24.4%
23.6%
26.1%
28.6%
33.8%
40.1%
41.7%
%ofHouseholdswithStudentLoans (2013=41.7%)
MedianValueofStudentLoanDebt (2013=$17,200)
25%
FOR GEN-X
MEDIAN
STUDENT
LOAN
VALUE
JUMPED
23.7%
IN 3
YEARS!

We view Millennials as more responsible than the debt-bing-
ing generation the media has portrayed. While it is clear from
the chart on the previous page that student loan debt is at a
record high, overall median debt is not. In fact, 2013 overall
median debt for households under the age of 35 is the low-
est since the 1998 survey.
IFFR201501291O_C
MedianValueofDebt
IFFR201501291O_C
MedianValueofDebt
1989 1992 1995 1998 2001 2004 2007 2010 2013
Source:FederalReserveTriennialSurveyofConsumerFinances. Valuesarein2013dollars.
15,000
20,000
25,000
30,000
35,000
40,000
45,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
$20,600
$16,900
$22,800
$27,500
$32,700
$41,400
$40,600
$42,500
$31,100
MILLENNIAL DEBT LOWEST IN 5 SURVEYS

In the table below, we compare how Millennials stack up
versus Gen-X in terms of percent of households holding debt.
While Millennials have taken on student loan debt like never
before, they have significantly less credit card debt and in-
stallment loans outside of student loans. For example, roughly
83% of both Millennial (2013) and Gen-X (1995) households
own(ed) a car, yet Millennials hold a lower percent of auto loans
(35.2% versus 40.1%) than Gen-X did at a comparable age.
% OF HOUSEHOLDS HOLDING LIABILITIES
HOUSEHOLDS 35 YRS OF AGE -- GEN-X VS MILLENNIALS
Type of Liability
1995 - Gen-X
(%)
2013 -- Millennial
(%)
Higher / (Lower)
(basis points)
Credit card balances 54.7 36.8 -1790
Other installment loans 22.8 11.5 -1130
Vehicle installment loans 40.1 35.2 -490
Home-secured debt 33.0 28.6 -440
Other debt 7.4 5.7 -170
Home-equity lines of credit 1.4 0.7 -70
Other lines of credit 2.7 2.1 -60
Education installment loans 24.4 41.7 1730
Total liabilities 83.5 77.1 -640
Source: Federal Reserve Triennial Survey of Consumer Finances.
Ned Davis Research Group T_IFFR201501291.1
MILLENNIALS
MUCH LOWER
THAN GEN-X
MILLENNIALS
MUCH HIGHER
THAN GEN-X

Unfortunately, despite having respectable overall debt
levels, the Millennials' income is dreadful. And lower income
has meant less opportunity to build assets. Seen in the table
below, both median income and median assets are the lowest
of the past nine surveys. On the positive side, we saw a slight
improvement in median net income / median net worth versus
the last survey, thanks to lower debt. We suspect 2010 was a
low for Millennials in terms of median Net Worth / Income.
MEDIAN NET WORTH AND MEDIAN INCOME
(HOUSEHOLDS AGE 35, 2013 DOLLARS)
Year Median Assets Median Liabilities Median Net Worth
Median Pre-Tax
Income
Median Net Worth /
Median Income
1989 36,200 20,600 14,100 37,700 0.37
1992 38,100 16,900 15,000 40,000 0.38
1995 48,700 22,800 18,200 38,900 0.47
1998 41,300 27,500 13,000 39,200 0.33
2001 51,100 32,700 15,400 43,900 0.35
2004 48,300 41,400 17,500 40,500 0.43
2007 43,600 40,600 13,200 42,000 0.31
2010 38,200 42,500 10,000 37,600 0.27
2013 29,600 31,100 10,400 35,300 0.29
2013 Rank 9 5 8 9 8
RANK: 1 = BEST, 9 = WORST
Source: Federal Reserve Triennial Survey of Consumer Finances
LIKELY BOTTOM
MODERATE DEBT... ...BUT LOW INCOME

WHEN WILL HOUSEHOLD FORMATION RISE?
We should already be seeing significant growth in household
formation. Calvin Schnure, SVP of Economic Analysis for NAREIT,
in his paper titled “When Living With The In-Laws Gets Old”5
,
showed that household formation has been running well below
the trend expected by demographics, and that this has created
pent-up demand of nearly 3 million formations. If we look
at an even longer-term formation trend line, pent-up demand
would be 4 million. This is very bullish for the prospects of
housing demand in the coming years.
90
100
110
120
130
2000 2002 2004 2006 2008 2010 2012 2014 2016
Total Households
Trend Growth Rate,
1990-2004
Millions Baseline Scenario
Revised Growth Trend
is 0.15% Lower
NAREIT estimates by Calvin Schnure, SVP, Research Economic Analysis, National Association of Real Estate Investment Trusts.
FORMATIONS RUNNING
3 MILLION BELOW TREND
EXPECTED BY DEMOGRAPHICS

Millennials are the key driver of this pent-up demand.
Currently, about 30% of young adults aged 18 to 34 live with a
parent6
. If this group returns to its historical range of about 23%
to 24%, 4.6 to 5.4 million young adults would move out of their
parent’s house. Still, household formation remains stubbornly
low. The American Community Survey (ACS) for 2013 reveals
that the number of shared households continues to rise. This
isn’t due to people having more babies; this is either due to a
non-immediate family member moving in, or having a child turn
18 and not attending school.
IFFR201501291P_C
Shared households are defined as households containing unrelated adults (18 and older, not romantically linked)
and children 18+ who are not in school.
Source: U.S. Census Bureau CPS Annual Social and Economic Supplement, 2007-2014.
IFFR201501291P_C
Shared households are defined as households containing unrelated adults (18 and older, not romantically linked)
and children 18+ who are not in school.
Source: U.S. Census Bureau CPS Annual Social and Economic Supplement, 2007-2014.
Shared Households
(in thousands)
Shared Households
(in thousands)
2007 2008 2009 2010 2011 2012 2013 2014
18,000
19,000
20,000
21,000
22,000
23,000
24,000
25,000
19,747
19,956
20,683
22,000
22,150
22,323
23,216
23,526
Shared Households as a
% of Total Households
Shared Households as a
% of Total Households
2007 2008 2009 2010 2011 2012 2013 2014
16
17
18
19
20
17.0%
17.1%
17.7%
18.7%
18.5%
18.4%
19.0%
19.1%
LOOKING FOR TREND TO
REVERSE WITH BETTER
EMPLOYMENT
NEARING A PEAK?

Better employment is the key to better household for-
mation. Andrew Paciorek, of the Federal Reserve Board, in his
paper titled“The Long and the Short of Household Formation”7
,
which took a more statistical approach, concluded that employ-
ment was the key near-term driver of the number of households
per population.
Joe Kalish also agrees that employment is key, and highlighted
in his recent housing report that the 25-34 employment-popula-
tion ratio has recovered about half of what it lost in the last down-
turn versus only about one-fifth for the overall ratio (chart below).
Many in the 25-34 age group have had jobs for three straight
years, increasing the likelihood of moving out on their own. We
are hopeful that the Millennials are on the road to recovery,
just as Gen-X was about 20 years ago (also see chart on page 1).
EMPLOYMENT-POPULATION RATIO (%)
TNT15_01B_C
RECOVERED HALF
OF ITS DECLINE

In an attempt to estimate when we might see robust house-
hold formation, we compared the pace of young adult employ-
ment growth, homeownership, and marriage for young adults in
this expansion versus Gen-X in the 1990’s expansion (table be-
low). Our best guess is that Millennials are about two years
behind the pace of the Gen-X recovery, and that we will see
strong formation starting around 2017. The actual pick-up
could be sooner or later depending on the factors we discussed,
including housing supply, credit availability, and most impor-
tantly, the labor market.
COMPARING PACE OF GEN-X VS MILLENNIAL RECOVERY POST-RECESSION
Gen-X Millennial Millennial Lag
Milestone
Milestone
Reached
Years After
Recession-End
(Mar-91)
Milestone
Reached
Years After
Recession-End
(Jun-09) (Years)
Young Adult (25-34) Employ-Pop Ratio rises 150 basis points Jan-95 3.8 Nov-14 5.4 1.6
Young Adult ( 35) Homeownership Rate bottoms Jun-94 3.3 Jun-14 5.0 1.8
Teen Unemployment falls below 18% Jul-94 3.3 Dec-14 5.5 2.2
Generation peak reaches Median Age of Marriage Dec-95 4.8 Dec-17 8.5 3.8
Average Lag (Years) 2.3
Household Formation Takes Off (grows 1.0% Y/Y) Sep-96 5.5 Apr-17* 7.8 2.3
*Apr-17 estimate based on Millennials maintaining averge lag vs Gen-X (2.3 years) for household formation.
Employment and household formation milestones based on three-period smoothing.
Marriage milestone is based on generation peak (for women) reaching median age of marriage, which is 25 for Gen-X (actual) and 27 for Millennials
(estimate).
Generation peak is in terms of U.S. Births, and is 1970 for Gen-X and 1990 for Millennials.
Source: Employment statistics from Bureau of Labor Statistics, Current Population Survey. Homeownership and Household formation from Current
Population Survey/Housing Vacancy Survey, Series H-111, Bureau of the Census. Median age of marriage from Bureau of the Census, Table MS-2, Ned
Davis Research.
MILLENNIAL POST-RECESSION
RECOVERY LAGGING GEN-X
BY A COUPLE OF YEARS

INVESTMENT IMPLICATIONS FROM MILLENNIALS AND HOUSEHOLD FORMATION
Over the next eight years, Millennials will start to move
into their 30s in droves. The 30-something age group should
jump by 4.7 million and be the fastest-growing age group under
60. While Baby Boomer age groups are clearly the fastest-grow-
ing, they are generally in a spending wind-down mode. They
are either becoming empty-nesters, retiring, or preparing for
retirement. While sub-industries within Health Care, Financial
Services, and Leisure Entertainment will certainly benefit from
aging Boomers, expect Retailers to be squarely focused on Mil-
lennials and their families.
IFFR201501291R_C
Projected Population Increase By Age Group
(2014-2022)
IFFR201501291R_C
Projected Population Increase By Age Group
(2014-2022)
Singles Tens Twenties Thirties Forties Fifties Sixties Seventies Eighties
Source:U.S.CensusBureau
-3,000
0
3,000
6,000
-3,000
0
3,000
6,000
2,513
122
-268
4,680
-634
-2,523
6,425
7,768
1,464
Bars represent population change in thousands.
BABY
BOOM
BABY BOOM
CHILDREN
(MILLENNIALS)
GEN-XGEN-Z
MILLENNIAL
CHILDREN

We looked at the BLS Consumer Expenditure Survey to see
where Millennials' spending might be most impactful. The sur-
vey breaks out spending for under-50 and over-50 households,
and we believe this is a good place to start. Most households
under 50 are in “ramping up / family mode” while over 50 are
in “winding-down / empty-nest mode”. The average number of
persons-per-household under 50 is 2.9, while over 50 is 2.1. The
chart below shows where larger differences occur for some of
the bigger spending categories.
In general, Millennials will be spending more and more
on rent, transportation, groceries, restaurants, apparel, per-
sonal services, cell phones, education, apparel, and enter-
tainment. We believe some of the greatest investment oppor-
tunities over the next ten years will come from the companies in
these categories that are most leveraged to young couples and
families.
IFFR201501291S_C
Who Spends More?
'Younger than 50' Less 'Older than 50' Average Household Spending
IFFR201501291S_C
Who Spends More?
'Younger than 50' Less 'Older than 50' Average Household Spending
$-1,500 $-1,000 $-500 $0 $500 $1,000 $1,500 $2,000 $2,500
Asof2013.Sources:U.S.Census,CurrentPopulationSurvey
Rented dwellings
Transportation
Used cars and trucks
Food
Food away from home
Apparel and services
Personal services
Gasoline and motor oil
Cellular phone service
Education
Food at home
Men and boys apparel
Footwear
Entertainment
New cars and trucks
Utilities, fuels, and public services
Medical services
Drugs
Lodging
Owned dwellings
Home maintenance, insurance, other expenses
Health insurance
$2,656
$960
$844
$839
$629
$516
$494
$407
$332
$286
$-363
$-439
$-570
$-767
$-1,218
POSITIVE MEANS UNDER 50
SPEND MORE
NEGATIVE MEANS OVER 50
SPEND MORE

We looked at the spending categories leveraged to the “un-
der 50”households from the previous page, and identified which
sub-industries would be most impacted. In order to determine
which sub-industries would be most sensitive to a pick-up in
household formation, we looked at: 1) the sub-industry correla-
tion to household formation; and 2) whether it outperformed
during the strong Gen-X household formation period from
1997-1999. Home Improvement Retail, Household Products,
Food Distributors, and Brewers showed best, but all sub-in-
dustries below should be considered good candidates to play
strong Millennial household formation.
SUB-INDUSTRIES POTENTIALLY LEVERAGED TO A RISE IN MILLENNIAL HOUSEHOLD FORMATION GROWTH
Category Leveraged to Under 50 Spending Related Sub-Industries
Correlation
With Household
Formation
Outperformed
'97-99?
Housing Home Improvement Retail Y Y
Household Products Y Y
Automotive and Transportation Automotive Retail Y dne
Automobile Manufacturers Y N
Auto Parts Equipment Y N
Food at home Hypermarkets Super Centers Y dne
Food Retail N Y
Soft Drinks Y N
Food away from home Food Distributors Y Y
Brewers Y Y
Restaurants N N
Apparel and services Specialty Stores Y N
Apparel, Accessories Luxury Goods Y N
Apparel Retail N Y
General Merchandise Stores N Y
Internet Retail N Y
Footwear Footwear Y N
Personal services Specialized Consumer Services N dne
Education Education Services Y* dne
Cellular phone service Computer Electronics Retail N Y
Entertainment Movies Entertainment N Y
Correlation with Household Formation = Y means the sub-industry had a correlation of 0.10 or greater to household formation and
ranked in the top 18 of all 46 consumer sectors. DNE means sub-industry did not exist 1997-1999. Outperformed '97-99 determines
if the sub-industry outperformed the sector from Q2-97 to Q2-99 when household formation was exceptionally strong for Gen-X.
*Education Services has a high negative correlation with household formation, as many young adults will go to college in a weak job
market in hopes of better prospects when they graduate.
Source: GICS Source: SP Capital IQ and MSCI, Inc.(GICS), Current Population Survey/Housing Vacancy Survey, Series H-111, Bureau of
the Census.

Below are some trend forecasts from the Consumer team (not our Macro team) based on our demographic work to-date. At Ned
Davis Research, we say we forecast for fun, but are trend followers at heart. As usual, we will rely on our trend-following indicators
for our actual recommendations.
7 PREDICTIONS RELATED TO THE MILLENNIAL GENERATION
„„ The Millennials have the swing vote, and they will vote in another Democrat President while most are in col-
lege. They will switch to electing Republican Presidents in 2020 because it suits them post-college, just as it
suited Baby Boomers to elect Reagan in the 1980s.
„„ A Presidential candidate will promise and obtain student loan relief.
„„ Millennials will be the first generation in their peak spending years to deal with rising rates and persistent
inflation since the Silent Generation grappled with it in the 60s and 70s. Our best guess is that it will start in
2028 when labor force growth begins to accelerate and the disinflation drag from retiring Baby Boomers is
largely past us.
„„ The Millennials' college enrollment rate will continue to drop because the supply of college degrees is out-
stripping demand. This supply demand imbalance will promote more entrepreneur careers, helped along
by crowd-funding and other non-traditional sources of capital.
„„ This generation will create its own powerful industry, just as Gen-X did with the dotcom/internet industry
and Baby Boomers did with Wall Street. Our best guess is it will be energy related.
„„ Millennials will really start to lift household formation starting around 2017.
„„ Consumer Discretionary will be one of the best-performing sectors from 2017 to 2027, driven by consumer
spending that will see less of a drag from retiring baby boomers and more of a lift from Millennials heading
into their peak earning/spending years.
CITATIONS
1. “Employment Projections – 2012 2022”, Bureau of Labor Statistics, U.S. Department of Labor, December 2013.
2. Richard Fry,“A Rising Share of Young Adults Live in Their Parents’Home”, Pew Research, August 2013.
3. Kay Hymowitz, Jason S. Carroll, W. Bradford Wilcox, Kelleen Kaye“The Great Crossover”, Twentysomething.org., March 2013.
4. Chartbook, 2013 Triennial Survey of Consumer Finances, Board of Governors of the Federal Reserve.
5. Calvin Schnure,“When Living With The In-Laws Gets Old”, NAREIT, April 2012. Households chart updated January 2015.
6. American Community Survey 5 year estimates, Young Adults Then and Now, U.S. Census Bureau, December 2014.
7. Andrew D. Paciorek, “The Long and Short of Household Formation”, Board of Governors of the Federal Reserve System, June
2013.

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