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 websiteproduces 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.
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My original dshort.com website was launched in February 2005 using a domain name based on my real name, Doug Short. I’m a formerly retired first wave boomer with a Ph.D. in English from Duke. Now my website has been acquired byAdvisor Perspectives, where I have been appointed the Vice President of Research.
My first career was a faculty position at North Carolina State University, where I achieved the rank of Full Professor in 1983. During the early ’80s I got hooked on academic uses of microcomputers for research and instruction. In 1983, I co-directed the Sixth International Conference on Computers and the Humanities. An IBM executive who attended the conference made me a job offer I couldn’t refuse.
Thus began my new career as a Higher Education Consultant for IBM — an ambassador for Information Technology to major universities around the country. After 12 years with Big Blue, I grew tired of the constant travel and left for a series of IT management positions in the Research Triangle area of North Carolina. I concluded my IT career managing the group responsible for email and research databases at GlaxoSmithKline until my retirement in 2006.
Contrary to what many visitors assume based on my last name, I’m not a bearish short seller. It’s true that some of my content has been a bit pessimistic in recent years. But I believe this is a result of economic realities and not a personal bias. For the record, my efforts to educate others about bear markets date from November 2007, as this Motley Fool