Car sales just hit levels not seen since late 2007 and early 2008. But we’re not surprised. In fact, we were expecting this for one simple reason: Car sales are one of the last major durable goods purchases to peak in the consumer life cycle.
This is why demographic research is so critical. It’s not just for broader spending, inflation, borrowing and savings trends that we can project decades in advance… the ultimate leading indicator. It’s also because, from cradle to grave, people do predictable things as we age.
Did you know that spending on potato chips peaks at age 42?
Because that’s when the average kid, born to Baby Boomers when they were 28, after they got married two years earlier (at the average age of 26), turns 14… an age when, as medical studies have shown, the calorie cycle for growing teenagers peaks.
Yes! It’s that damn simple…
28 + 14 = 42 for the peak in potato chips… and for grocery stores… and food in general!
You see, the consumer spending cycle starts at age 18, when many people graduate from high school and enter the workforce. From there, we see a steep rise in spending until around age 39, by which point most people have bought their largest home.
Then there is a final peak in overall spending at age 46, when the average kid gets out of high school and leaves the nest.
But spending remains on a plateau into age 53 before its starts to decline sharply.
Now, Baby Boomers in the U.S. hit their 46-year-old peak in spending in 2007… and the economy has been rough and slowing ever since. It requires massive monetary stimulus and fiscal deficits to keep us growing at a measly 2%. Not a good deal.
So what does that have to do with the latest figures showing that car sales have moved up again? Simple…
Just like housing is the first major durable goods sector to peak when people are in their late 30s and early 40s, automobiles are the last to peak! There is a first surge into age 25 and then a long rise into age 53… right where the secondary peak in spending peaks and starts to turn down more rapidly.
This chart illustrates this point nicely…
On a 53-year lag from the peak of the Baby Boom birth cycle in 1961, we can see that car sales would be at their best into 2014 and then start to fall more dramatically, just as housing did many years before.
Purchases on credit like housing, cars and furniture are our most leveraged, as we use credit to acquire them and then pay down the debt over time.
Furniture purchases peak at age 46.
Cars are the last leveraged purchase we make to hold up the economy and borrowing.
So, we’re not surprised that auto sales are a bright spot in an otherwise difficult economy right now. Record low longer-term interest rates make a big difference, although less than housing, which is also benefiting recently.
I just recently turned in my car and re-leased. I saved over 10% in monthly payments… just from the lower interest rates! That makes a big difference.
So why wouldn’t auto sales be doing very well?
Especially in higher end vehicles… people tend to trade up after their kids have left the nest. They don’t need – or want! – a crappy minivan anymore. And when they go into a mid-life crisis, they splurge on that luxury or sports car, or for real men, that pick-up truck!
Expect car sales to continue improving until sometime in 2014, when they’ll roll over the cliff with Baby Boomer spending.
Like I said: Predictable.
What’s even better is there are hundreds and thousands of such predictable spending waves – from cradle to grave – that will impact your business and different stock sectors. And we’ve put together a substantial collection of them for you in our latest special research report called Spending Wave: The Market Outlook For More Than 200 Consumer Products.
Get your copy here, now… and then put them to use in your business and investment portfolio.
Ahead of the Curve with Adam O’Dell
As consumers we’re rather predictable in our spending patterns because, frankly, we just NEED certain things. Try telling a teenage he can’t have his potato chips! He’d starve, right!?