I’ve always been in the forecasting business. As such I’m constantly on the hunt for accurate, consistent and reliable leading indicators that show me what’s going to happen around the corner.
The best indicator I’ve ever found is the Spending Wave, which is a simple 46-year lag on the birth index of any major developed country. It reflects the peak in spending of the average family.
It’s not always a 46-year lag, mind you.
In Japan it’s a 47-year lag because the country has lower immigration and a higher percent of its population going to college.
And the lag may be slightly higher or lower in different developed countries around the world.
But here in the U.S., consumer spending has a 46-year peak on the birth index, which is how we knew to prepare for the roaring boom in the 1990s and again in the 2000s, why we warned of a major economic peak in late 2007 and why we continue to warn that the worst is not yet over…
Of course, it appears that consumer confidence is edging up, that manufacturing is on the up, that unemployment levels aren’t worsening (they’re not getting better either, mind you)… so how can I stand here and claim things are going to get worse?
Quite simply, consumer confidence is a terrible indicator and all of those other statistics are utter B.S… a master work in the art of manipulation.
At Japan’s greatest economic and stock peak, just before the greatest crash that followed, consumer confidence was great! That’s because consumers only reflect the present and recent past. They don’t look ahead.
And they have NO clue how to predict the economy.
All they’ve got going for them is their misplaced idea that they’re better-than-average lovers and drivers, and that they have better-than-average kids. And they think this qualifies them to predict economic shifts accurately?
If life is good, if trends are up, consumers are more confident.
Again, Japan looked the best it ever did, and ever will, in late 1989, just before its stock market crashed 84% and home prices crashed 64%.
And that’s not the only time consumer confidence has failed miserably to indicate the direction of the markets or the economy. There are numerous examples throughout history, like 1929 and 1972 in the U.S.
The Twist in This Tale…
Okay… for the U.S., the average person’s spending peaks around age 46. If you apply that number to the enormous bulk of the Baby Boom generation, you’d see that our economy should have topped on the growth front around late 2007.
In part, it did and we experienced the 2008 crisis. Trends don’t bottom until around late 2019, and don’t really turn up again until late 2023 or so.
But in the U.S., the top 1% and top 10% of people claim a higher percentage of the economy’s wealth, income and spending than most developed countries in Europe or Australia.
Did you know that the top 1% of people in the U.S. hold nearly 50% of the wealth or net worth in this country?
Did you know that the top 10% of people in the U.S. control almost 50% of the income and spending?
And did you know the top 10% of people in the U.S. peak about five to six years after the average person in spending? And the top 1% that control nearly 20% of spending peak seven to eight years later?
Well, they do because they tend to go to school for longer… and their kids go to school for longer… except for Paris Hilton and Lindsay Lohan.
If most households, that control nearly 50% of consumer spending, peaked in late 2007, then most of the other 50% should peak by late this year. That doesn’t bode well for the coming years!
Consumer sentiment, home sales and GDP – all the unreliable indicators people look to for guidance – will go down when the economy declines ahead… but they won’t see it coming.
So do yourself a favor. Don’t listen to consumers, or even most of your friends.
Instead, keep reading Survive & Prosper.
Ahead of the Curve with Adam O’Dell
It’s not just the U.S. that’s about to lose its main engine of growth – a large demographic group of peak spenders. This troubling turn has already begun in the euro zone, from the UK and Germany to France and Spain. Russia’s demographic trend is also on the decline. And of course, so is Japan’s, as we discuss regularly. Even China is on the edge of this precipice. Most people just don’t know it…