As savings rise and the market rallies, however, a new consumer is emerging, seeking a sensible middle ground between the gross excesses of the mid-2000s and the privations of the past year. He -- and more often, she -- is likely to find it in companies that offer great products, excellent service and outstanding value, which, by the way, doesn't always mean the lowest price.
Now the WSJ weighs in:
The economy appears to have begun recovering after the worst recession in half a century. But businesses ranging from shoemakers to financial services to luxury hotels don't expect American consumers to return to their spendthrift ways anytime soon. They see consumers emerging from the punishing downturn with a new mind-set: careful, practical, more socially conscious and embarrassed by flashy shows of wealth.Much as the 1930s shaped the spending habits of an entire generation, many companies now anticipate a shift in consumer behavior that persists even after jobs and growth get back closer to normal.
"We seem to be at a cultural inflection point that we haven't seen since World War II," said Jim Taylor, vice chairman of market researcher the Harrison Group. Last month it surveyed 1,800 affluent Americans and found that 48% think they could suffer major financial losses in the future. "People are getting used to being careful, and I don't know how you undo that," Mr. Taylor said.
This ties in to a few interesting developments.
Total household debt outstanding is decreasing. Therefore
Debt service payments as a percentage of disposable income are decreasing. In addition
The financial services obligation ratio is also dropping. In addition,
The savings rate is increasing, indicating we're spending less.
So, we're paying down debt and becoming thriftier. We're becoming our parents.
4 comments:
The problem is that balance can never be fully achieved for long. When times look good people will throw caution to the wind and set us all up for a fall and when times are bad people will go into hiding which further escalates the downturn. Boom and bust is human cycle.
"People are getting used to being careful, and I don't know how you undo that," Mr. Taylor said.
YOU DON'T YOU STUPID GREEDY JERK.
Also, I have no idea where the hell this perception comes from in the first place. Quality? Service?? People are getting even cheaper than ever! Rock-bottom joints like McDonald's and Wal-mart tend to increase their market share as cash-starved families try to stretch their dollars (and get the stupid idea that low price = value), and that's backed up by data shown on this blog that small businesses are feeling a deep hurting.
My employer sells high-quality industrial-grade parts and the entire sector is getting slaughtered, even as industry is recovering. Our competitors are introducing more low-cost lines to respond to the growing demand for cheap crap. Forget consumer-grade (which never looked at us to begin with); even industrial suppliers are ditching quality for price. That means thanks to the recession + the American consumer mentality that values price over everything else, the next IV machine, truck bay door or other equipment that you think needs to be reliable may be made from god-knows-what to squeeze a few more dollars of profit during tough times.
By the way, the WSJ published an article last week that interviewed a few families in Orange County and concluded consumers were still free-spending idiots. As the Flow of Funds report showed, that is just not the case.
Don't trust any article in traditional media. Well-sourced data is all I look at anymore.
I took us about 25 years to get to the point where shopping became a pasttime, a main vacation activity, even a "therapy". It will take quite a while to undo this mindset. Remember, the Great Depression lasted a decade (and was followed by war rationing). If there was a significant recovery by '32, I don't think we'd be talking about a frugality engendered by the Crash of '29. On the other hand, if we remain in the doldrums for another year or two, that could have a long term impact on spending habits.
Uncle Toby -
Carefree times are fleeting, but people remember agony forever. As a matter of survival instinct, we're wired for that. The youngest (and thus hardest hit) in the labor pool probably won't forget these years.
Of course, some people just can't manage their money, but they get into problems no matter what times they live in -- and playing up exceptions isn't good analysis.
I just don't see how an extreme economic downturn leads to people willing to pay more for quality or service. They have, however, gotten more economically nationalistic: When Ford declined to demand a bailout, they grabbed a HUGE chunk of market share from its competitors.
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