Observations

Sales of most goods rise at a faster pace when the number of people in the 40-50 age bracket becomes predominant and rises rapidly. They are the big spenders.
Spending, however, decreases when this important age group declines. The overall budget, and this is important, is reduced because of reduced needs.

We are interested in the 40-50 year old group because it determines the trend of the economy with its increasing needs. The faster this group grows, the more rapid is the economic expansion. These are important generational patterns setting the character of the economic times for decades.

How can we tell if this group is going to grow faster or slower? And if so, for how long? The Census provides us with the answers. If the birth rate was rising 40 years ago, we should expect the 40-year old population to grow faster from this point on.

The 1980s were a great decade because the birth rate increased dramatically from 1930 to 1950, thus delivering in the 1980s (40-50 years later) the group who boosted the economy and the stock market for 20 years.

In 1955, the birth rate started declining. The 40-50 year old group began decreasing in 1995-2000. Why do we care? Because since 2000, we have fewer big spenders, being the major cause of a general economic slowdown with a negative impact on profits and equity markets.

Until when? The birth rate increased again in 1975. The implication is that the 40-50 year old group will become the dominant player after 2015. This will be the time when the economy starts growing faster, profits rise more rapidly, and equities will appreciate faster than the 7% average pace. The then President will take the credit.

The point is that the current economic malaise is the outcome of profound demographic changes, which will last at least 5 more years. The economy will grow slowly because of deleveraging. This trend, however, is reinforced by the gradual increase in the 40-50+ year old. This is the group with lower propensity of spending because of its reduced needs.

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
Ranked Top Market Timer in 2009 and 2010 by Timer Digest

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