Consumers and the Recession
Where we are in this recession is something the economic historians will decide. What we’ve become during this recession is already evident. Whether it’s scaling back on a flat screen TV purchase (like my family) or clipping coupons again, we’ve all been affected by “recessionitis.” Chances are you didn’t purchase a new BMW or Bentley this year – even if you could afford it. Instead, you went for a more economical vehicle – or even forgot about a new car altogether. That is, unless you used cash for clunkers.
The Great Depression taught Americans about thrift, a virtue largely absent from society in recent years. Now thrift is mainstream once again. Opulence is out and living frugally in. The New York Times points out these new realities…
“Millions of Americans spent years tapping credit cards, stock portfolios and once-rising home values to spend in excess of their incomes and now lack the wherewithal to carry on. Those who still have the means feel pressure to conserve, fearful about layoffs, the stock market and real estate prices.
Some suggest the recession has endured so long and spread pain so broadly that it has seeped into the culture, downgrading expectations, clouding assumptions about the future and eroding the impulse to buy.”
In addition to curbing their purchase decisions, consumers are saving more. According to the Bureau of Economic Analysis, Americans saved 2% of their income in 2007. The savings rate has improved to over 4% in recent months – a 100% improvement motivated by economic uncertainty. We’re living in an age of scarcity now – or so thinks the culture.
Why this change? The US economy has lost 6.7 million jobs since the onset of the recession in December 2007. Everyone knows someone who has lost a job, making the income problem palpable. Many have lost income due to the downturn, making the problem real. Some could lose our jobs in the next round of cuts, making the problem scary. No wonder consumers are thrifty these days.
With consumers accounting for around 70% of the US economy, investors should take note of the renewed sense of value. Companies known to provide products and services at a better price will do better than those perceived as more costly. Whether or not the short-term rally continues, look to the new value culture for new opportunities.