By Nicole Goodkind
Kansas City Federal Reserve President Jeff Schmid has found a silver lining in America's graying demographics: All of those extra visits to the doctor are good for the economy. But the same spending that is driving growth is also fueling much of the inflation the Fed can't seem to tame.
In a speech this past week, Schmid said that healthcare spending was the single largest contributor to consumer spending growth in 2025. It was propelled by an aging population: The share of Americans over 75 is hitting an inflection point, and will only climb from here.
Healthcare surpassed housing and utilities in early 2023 as the fastest-growing category in the personal consumption expenditures price index, or PCE, the inflation measure that the Fed watches most closely. By the third quarter of 2025, it accounted for nearly half of all spending growth, contributing almost a full percentage point to overall economic expansion.
Healthcare is also keeping the labor market afloat. The sector added 686,000 jobs in 2025, accounting for more than all of the gains in nonfarm payrolls. "Job growth is slowing, yes, but not in free-fall, thanks to healthcare," said Appcast Chief Economist Andrew Flowers in a note on Friday.
Yet healthcare costs are also a persistent source of inflation. Unlike housing costs, which are finally cooling after years of runaway growth, medical costs don't move with the economic cycle. When the economy slows, people don't skip chemotherapy. The San Francisco Fed classifies healthcare as an "acyclical" inflation component, meaning that it moves independently of economic conditions, and is thus immune to the Fed's tool kit.
Healthcare accounts for roughly 16% to 17% of PCE. With core inflation running at about 3% annually, well above the Fed's 2% target, healthcare is a big reason that the last mile back to targeted inflation has proved so difficult.
America's aging population spells other problems, too. While healthcare spending has benefited the economy, population trends could also limit the pace of growth in coming years by constraining the labor pool, as Schmid said this past week.
By 2030, people over 65 will outnumber those under 18 for the first time in U.S. history. The number of jobs that need to be added monthly just to keep unemployment stable has fallen from 150,000 a year ago to 77,000 today, according to the Kansas City Fed, because there aren't enough new workers entering the labor force.
Economists have long argued that immigration would fill the gap. The Congressional Budget Office now estimates that immigration will account for about 100% of U.S. population growth over the next decade, and well over 100% after 2031, as the native-born population shrinks. A recent Economic Policy Institute report found that achieving historically normal rates of economic growth will be nearly impossible without sustained immigration flows.
But stricter immigration enforcement has sharply curtailed the inflow of people that economists assumed would offset the retirement of the baby boom generation. "We hit a demographic wall," says Joseph Brusuelas, chief economist at RSM. "We don't have enough replacement population as [the boomers] retire. We've known this for years."
The assumption, he says, was always that the U.S. would tend to the retirement of the boomers through immigration. "That's now exogenous; it isn't going to change for a while," he says.
Goldman Sachs researchers argue that the negative narrative is overstated, given that people are living longer and staying functionally younger. A 70-year-old today possesses the cognitive capacity of a 53-year-old in 2000, the firm wrote in a recent report. Working lives are lengthening, which helps.
For investors, healthcare stocks are beneficiaries of a trend that doesn't have much to do with the business cycle, that monetary policy can't slow, and that demographics won't reverse. And Washington, for all of its efforts to reshape the economy, can't legislate aging away.
Write to Nicole Goodkind at nicole.goodkind@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
April 03, 2026 16:13 ET (20:13 GMT)
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