Demographer Harry Dent was recently a featured guest on Bloomberg TV in an interview that was promoted with the frightening tease “S&P 500 to Fall 30-50% in 2012.” See the video clip below for the complete interview.
The rationale for Dent’s grim forecast is primarily based on the demographics of the peak spending years, an age cohort he refers to in the interview as ages 46 to 50. If we use the Census bureau five-year data groupings, the cohort in question is Age 45-49 (which is the range Dent normally refers to in his publications).
A search on “demand curves” at Dent’s website produces a link to a fascinating PDF file illustrating the life-cycle buying habits of households by the age of the head of household for about 240 different product categories. If you spend a few minutes looking over these pages, you’ll quickly grasp the significance of demographics for spending patterns and why the 45-49 cohort earns the reputation of peak spenders.
Let’s first have a look at the Bloomberg interview, and then let’s study a graph of the Census Bureau historical and forecast data for the peak-spending cohort population in the US from 1980 to 2050.
The Age 45-49 cohort peaked in 2009 and will bottom out in 2022 after an estimated decline of 13.4% from the 2009 population. The Census Bureau’s estimate for 2012 would give us an additional 8.8% decline in numbers for the big spending cohort before bottoming out.
Economists and market analysts often think of retiring boomers as the primary drag on the economy with their the transition from the accumulation to the decumulation phase of their life-cycle. But if we understand of the crucial role of consumption for our economic health (about 70% of GDP), a significant decline in the number of peak spenders is a demographic headwind that will challenge us for years to come.