Personal consumption, or what people do as consumers, represents about 70% of the Gross Domestic Product. Why is this important? It means that how people as consumers spend money is the largest influence on our economic health. As larger groups of consumers age and spend more, the economy grows. When large groups in the population pass their peak stage in spending, this leads to less spenders and slows down the economy.

The Basis of All HS Dent Research and Forecasts: The Consumer Expenditure Survey

This is an annual survey covering approximately 5000 respondents. The survey has been conducted annually since 1984, and consists of interviews as well as diaries of spending. The respondents are asked to list all income and expenditures out of their personal budgets for a over a month.

This report is the basis of the research and economic forecasts of HS Dent, and the underpinning of The HS Dent Method.

If you have narrow dispersion of an outcome based on one variable, then knowing that variable becomes very important. Using the Consumer Expenditure Survey, we found that when calculating what is spent on product purchases (the outcome) based on how old the consumer is (variable), there was a narrow dispersion of answers across hundreds of products and categories. This gives us the ability to forecast sales based on the age of our population with a high degree of certainty.

Once we have a sense of WHAT people are doing, then we have to have a plausible reason as to WHY people are behaving in such a way. This leads from a discussion of spending by respondents to the age of the respondents, and finally to their family situation and how it is changing over time. It is the interlocking of these relationships that gives us the ability to forecast spending with such a high probability of success.

Let’s take potato chips:

The demand is the highest at age 42. It’s not as if there are a bunch of 42 year olds eating potato chips. We’re buying the chips for our children. When the parent is 42, the average aged kid of that parent is 14.

Take Healthcare:

The demand for Healthcare is the highest after 50. It begins to creep up from early 30’s to 40’s but begins to take a dramatic rise after 50.

People represent about 70% of the Gross Domestic Product and represent the largest influence on our economic health. As larger groups of consumers age and spend more, the economy grows. When large groups in the population pass their peak stage in spending, the economy slows down.

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Class 3:Birth Rate and the Immigration Adjusted Birth Index