THE HARLEY DAVIDSON ECONOMIC INDICATOR 8/15/2008

I had an opportunity to travel through several of the northern-plains states last week and witnessed a phenomenon that may well be a barometer of our nation’s economic strength, which we’ll now refer to as the Harley Davidson Indicator. But first, some background.

In the late summer of 1973, I traveled with an uncle through some of these same states and saw hundreds, if not thousands, of bikers – my mother referred to them all as Hell’s Angels, though few of them likely were. They were mostly free-spirited young men and women traveling towards Sturgis, South Dakota for the nation’s largest motorcycle rally. They were mostly in their 20’s, fit, out for a good time, with little to share and even less to spend.

The quintessential big bike then, just as now, was a Harley. But as years passed, the Harley brand began to fade as most of these enthusiasts were buying homes, raising families and keeping their collective noses to the grindstone. By the late 1980’s, Harley Davidson teetered on the brink of collapse and desperately needed a shot in the arm. One visionary Wall Street investment firm saw that those same ‘twenty something’s’ that loved Harley’s in the 60’s and 70’s, but couldn’t afford them in the 80’s and early 90’s, would come back with a vengeance as their children grew up and their incomes continued to increase. That firm guided Harley Davidson through a major public offering that ultimately provided Harley with the capital needed to manufacture the extraordinary bikes we see today.

Harry Dent, one of the most optimistic and accurate economists in our country, even developed an entire economic theory behind this demographic of young men becoming mature adults and eventual retirees. He called it the ‘spending wave’ and wrote about it in his 1993 book titled ‘The Great Boom Ahead’ and again in his 1999 release of the ‘Roaring 2000’s’ – great reads, both of them. Dent’s theory is that those in our economy with the greatest spending and investing power drive the markets. He concluded in 1993 that 50+ year old men held this power and in the early 2000’s revised this to include professional women of the same age. His theory is built on the fact that this demographic is at the peak of their earnings and are most likely seeing a decline in necessary spending, resulting in an increase in discretionary income. Further, Dent concluded that they would become the highest spenders and most active investors and you could predict the rise in the investment markets by the rise in the number of these individuals in our economy. He was right.

So if Dent had been with me and my wife as we followed I-90 west through northern South Dakota, he would have seen the embodiment of his theory. Thousands of big bikes headed towards, or coming back from, motor cycling’s largest rally destination – Sturgis. Unlike my 1973 trip, the riders were Dent’s ‘fifty something’s’; and this time they had more to share and substantially more to spend. Some of the evidence of this could be seen in the splendor of these bikes, the gear and back-up vehicles that support them, the apparel worn by those riding them and the ‘bling’ on the hands, arms and necks of the ‘mamma’s’ riding on the back of about half the big bikes. To suggest that this was a spectacle would be a gross understatement. We decided to get off of the interstate about 150 miles east of Sturgis to steer clear of the swarms of bikes – naïve to say the least. The closer we got to Sturgis, the more bikes crowded the roads. Every little town we went through was jammed with bike and bikers and more importantly, the motels were full, the restaurants were jammed, every gas station and convenience store we happened across had lines to rival those of the mid 1970’s and you could almost hear the cash registers over the roar of the hog’s (the two and three wheeled kind)!

Being a curious guy, I stopped and talked to 10-20 of these bikers a day for three days. They were factory workers, physicians, accountants, school teachers, republicans, grandparents, sales people, lawyers, patriotic, engineers, democrats, married, divorced, and from virtually every walk of life. What they had in common was a love of the road, a drive to see to it that 50 really is the new 30, and lots and lots of cash! They were less concerned about the cost of gas than the cost of health care. They weren’t amused by the decline in real estate values or the volatility of the stock markets, but they expressed confidence that the markets would come back with even greater profits than before. They were having a great time and supposed that whoever becomes president next will likely offer as many problems as solutions. And, like Dent, they’re right.

I came away from this trip pleased for the opportunity to get away with my wife for a few days and appreciative that I’d crowded into the terrace at Mt. Rushmore with over a thousand bikers and others. I also came away confident in the resiliency of Americans and the American economy. The Harley Davidson as an economic indicator? Maybe not, but those that are riding them have money to spend and proud of it.