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Presentation Slides & Transcript

Presentation Slides & Transcript

Demographics School
presented by
Rodney Johnson & Harry S. Dent Jr.

Dent Research

HS Dent
Independent Economic Research Company

Forecast economic change based on three key tools:
1. Demographics and demographic trends
2. Predictable consumer spending patterns, and
3. Technological innovation acceptance rates

Demographics

Strong Uptrends and Downtrends
in Births

Average Immigrants per Year
by Age 1945-2000
Source: US Census Bureau

The Immigration Adjusted Birth Index
Immigration Adjusted Births
Source: Dent Research

How many people born in each year

The numerical effect of immigration

Composition of US population by age groups

Where the information comes from (NCHS, Census)

Websites of interest: www.cdc.gov/nchs/ www.census.gov


Demographics

Predictable Spending Patterns

Average Annual Family Spending by Age (5-year age groups)
46-50
Spending
Age

18-22
Single
22-30
Young
Married
31-42
Young
Family
46-50
Family,
College
Kids
50+
Empty
Nesters
60+
Retired
Change in Spending at each Age & Stage of Life

Boomers Are Not Different!

Front end of Boomer generation began retiring in 2003

Wave continues through 2025

Spending STILL PEAKS approx. age 48-50

Education (college, trade school, etc.)
Workforce
Apartments
Marriage
Children
Home purchase
Second home purchase
Children leave
Pay down debts
Save for retirement
Vacation property
Retirement property
The Adult Life Cycle

Only Works for Some
Economies must be
Industrialized
Modernized
Democratized in terms of consumers holding funds

Source: U.S. Department of Commerce, Bureau of Economic Analysis, 2013
Who Spends What in the Economy
2012

Data Source: Bureau of Economic Analysis, 2013
Who Spends What in the
Economy, 2002-2012

Composition of U.S. Gross Domestic Product, 1929-2012
Source: Bureau of Economic Analysis

Source: U.S. Department of Commerce, Bureau of Economic Analysis, 2013
Who Spends What in the Economy
2012

Share of GDP, Accounting for Government Social Programs and Financial Recoveries
Data Source: Bureau of Economic Analysis, HS Dent Research, 2013

Percent of Personal Income Contributed by Government Programs
Source: BEA, HS Dent Research, 2013

Total Government Transfer Payments 2000-2012
Data Source: Bureau of Economic Analysis, 2013
In Billions

Americans on Food Stamps
2006-2012
Data Source: USDA, 2013

Americans on Disability
Data Source: SSA, 2013

Data Source: Bureau of Economic Analysis, 2013
Real Personal Consumption Expenditures 1995-2012
Billions of Chained 2005 Dollars

Data Source: Bureau of Economic Analysis, 2013
Billions of Chained 2005 Dollars
Missing Growth
Real Personal Consumption Expenditures 1995-2012

Composition of U.S.
Personal Consumption Expenditures
Data Source: Bureau of Economic Analysis, 2013

This Is What You See

Potato Chip Purchases by Age
42

Motorcycle Sales by Age
Age of Head of Household
$ Per Year
45-49

Immigration-adjusted Births Lagged 45 Years for Peak Spending
Harley Davidson Annual Units Sold
The Harley Wave
Data Source: HS Dent Research, U.S. Census Bureau, Bloomberg, Harley Davidson, 2013

Harley Davidson, Units Sold
1986-2012
Data Source: Harley Davidson, Hog Fact book, 2013

Harley’s Biggest Problem
“Harley Davidson’s Aging Biker Problem”
Fortune, 9-17-10, Alex Taylor

“…it is struggling against a foe that not even cost-cutting nor brand loyalty can overcome: demographics. Its current owners are getting old, and not enough younger ones are coming up behind them.”

Harley Davidson Share Price
1987-2013
Data Source: Yahoo! Finance, 2013

Personal Care Services For Females, Including Haircuts
Source: Consumer Expenditure Survey

Source: Consumer Expenditure Survey
Spending on Drugs

Source: Consumer Expenditure Survey
Electricity

Fast Food for Lunch
Source: Consumer Expenditure Survey

The Immigration Adjusted Birth Index
Immigration Adjusted Births
Source: Dent Research

The Spending Wave
Births Lagged for Peak Spending
Data Source: HS Dent Research, U.S. Census Bureau, Bloomberg, 2013
Dow Adjusted for Inflation, Log Scale
Immigration-adjusted Births Lagged for Peak Spending
30,000

The Spending Wave
Births Lagged for Peak Spending
Data Source: HS Dent Research, U.S. Census Bureau, Bloomberg, 2013
Dow Adjusted for Inflation
Immigration-adjusted Births Lagged for Peak Spending

Age & Stage of Life Determine Spending Patterns

As we move through predictable stages of life, which correspond with different ages, we change our spending in very predictable ways.

What we buy at each stage is predictable and consistent.

This information can be used to forecast how spending will change in the years and decades to come.

Website of interest: www.bls.gov/cex/

Daily Consumer Spending
2008-2013
Data Source: Gallup.com, 2013

Past Forecasts
“For the 1990s and Early 2000s – Our Greatest Boom: Dow Rises to 10,000.”
Our Power to Predict, back cover (1989)

“After those enormous deficits into 1992, the government will likely be in a balanced budget or surplus by 1998-2000.”
The Great Boom Ahead, pg 62 (1994)

“The next great depression will be from 2008-2023.”
The Great Boom Ahead, pg 16 (1994)

"No amount of government stimulus will prevent it…"
The Great Boom Ahead, pg 35 (1994)


Contrary to popular belief, Americans really can pass The Marshmallow Test

We’ve Seen This Movie Before, Just Look To The East

Japan Birth Index
47-Year Birth Lag
Births (millions)

Japanese Nikkei Index
Jan 1984 – Jan 1990

Japanese Stock Market vs. Change in Consumer Spending 1987 – March 2013
Data Source: Japanese Family Income and Expenditure Survey; Yahoo Finance, 2013
Nikkei Average
Change in Consumer Spending

The Rise of Non-Regular Workers in Japan
Source: Ministry of Internal Affairs and Communications (2007), Employment Status Survey, 2012
Percentage of Non-Regular Employees

Percentage of Workers Earning Less Than $20,000, by Category
Source: Ministry of Internal Affairs and Communications (2007), Employment Status Survey, 2012
Only 1% Earn More Than $30,000
Less Than 2% Earn More Than $30,000
Over 67% Earn More Than $30,000

Percentage of Workers Earning Less Than $20,000, by Category
Source: Ministry of Internal Affairs and Communications (2007), Employment Status Survey, 2012

Inflation/Disinflation/Deflation

Quantity of Money Formula for Inflation

MV=PY

M=Money Supply P=General Price Level
V=Velocity Y=Real Income

Inflation Indicator
Data Source: Bureau of Labor Statistics, HS Dent, 2012
LABOR FORCE GROWTH
2.5-YR LAG
INFLATION (CPI)

Source: U.S. Census Bureau and U.S. Bureau of Labor and Statistics
20 Year-Olds
on a 3-Year Lag Minus 63 Year-Olds
Inflation
Inflation Forecast
Annual Labor Force Growth
Annual Inflation (%)

Inflation
Inflation, in a stable financial system, is based on people and workforce growth

Changes in labor force can be used to forecast inflationary pressures

Tremendous changes are coming

Inflation Fears Are Misguided
It’s DEFLATION That Will Hurt!

With the US government doubling the asset base at the Federal Reserve and pumping trillions of dollars into the economy, everyone is worried about inflation – too many dollars chasing too few goods.

It’s understandable, but wrong. If the economy remained constant, this would make sense. But we are changing, and the changes will eventually mean deflation, not inflation. Unfortunately, deflation hurts a lot more!

The Value of “M” Is the Size of the Money Supply

Printing press – the US Government creates out of thin air

Lending – banks and other institutions create out of thin air through fractional reserve, short borrowing versus long lending

Lending Dollars Into Existence
(fractional reserve)
Banks are required to hold a percentage of deposits (a fraction), they lend out the rest. If they do not lend, they do not collect interest and cannot pay their depositors.

If a deposit is made for $1,000, the bank can lend $900, thereby “creating” $900 out of thin air. But the other side of the journal entry of the loan to the borrower, is the note that the borrower owes back to the bank.

Money “Creation” Works
Both Ways

The contraction of money is already happening, just not at the Fed.


When any debtor either pays back a loan created through fractional reserve, or has a loan canceled (foreclosure, modification, etc.) then money supply has been contracted.

Government
$14Trn
Financial
$17Trn
Corporate
$11Trn
Consumer
$14Trn
Total:
$56 Trn !
Source: Federal Reserve Flow of Funds Report
Total U.S. Debt - 2008

Government
$19.4Trn
Financial
$13.8Trn
Corporate
$12.7Trn
Consumer
$12.2Trn
Total:
$60.4 Trn
Data Source: Federal Reserve Flow of Funds Report, Treasury Direct, 2013
Total U.S. Debt Outstanding
1977-2012
Foreign
$2.3Trn

Change in Debt Outstanding 2000 - 2012
Data Source: Federal Reserve Flow of Funds Report, 2013

Growth of Consumer Credit
2006-2012
Data Source: NY Federal Reserve Quarterly Consumer Credit Report, 2013
Index 100= 2006

Consumer Credit less Mortgage and Home Equity, 2003-2012
In Trillions
Data Source: NY Federal Reserve Quarterly Consumer Credit Report, 2013

The Fed Is Pouring Money In
While Borrowers and Lenders are Leaking Money Out
Amount of Money in the Economy
The Money Supply Fight