In a review of the new book Making Hispanics: How Activists, Bureaucrats, and Media Constructed A New American, Claude S. Fischer traces the term from the 1970s:
Activists had previously stressed their national origins and operated regionally – notably, Mexicans in the southwest (where the term “Chicano” became popular for a while) and Puerto Ricans in the northeast. But the larger the numbers they could claim by joining together, the more political clout, the more governmental funds, and the more philanthropic support they could claim.
Pumping up the numbers was particularly important given their latent competition with African-American activists over limited resources and limited media attention. Some pan-ethnic term promised to yield the biggest count. Spanish-language television broadcasters, notably Univision, looked to expand their appeal to advertisers by delivering them a national market. … They could then sell not medium-to-small Mexican-, Cuban-, or Puerto Rican-American audiences to advertisers, but one huge Hispanic-American audience.
Making the term official as a census category helped both activists and entrepreneurs. Previously, the Bureau of the Census classified Latin Americans as whites with distinct national origins, usually poorly measured. The activists pressed the census bureau, as did some politicians, to provide as broad a label as possible and count everyone who might conceivably fit the category, including, for example, the African-origin Dominicans (although not the French-speaking Haitians nor the Portuguese-speaking Brazilians). This pressure led to the 1980 formulation, used ever since, in which the census asks Americans whether or not they are “Hispanic” separately from whether they are white, black, Asian, or Indian.