Economy Up! Consumerism...down?
Although you can find conflicting reports, the general consensus among analysts is that the economy is rebounding
. If the economic condition of our nation truly is improving, albeit at a lackluster pace, one could assume that consumer spending would also be on the rise; however, reports from retailers do not support this theory.
While the recent recession has had serious affects on many individuals and businesses, the reality is the majority of Americans kept their jobs, homes, and for the most part, lifestyles; so why is spending down? It seems that there is a new trend developing for those who were fortunate enough to weather the economic storm; that trend is frugality.
A major component of retail spending is consumer confidence, and those that have maintained their level of discretionary income have been scared by the sizeable drops in real estate value, and the volatility of investment portfolios, prompting them to close their wallets and tighten their purse strings.
During the boom homeowners saw their property values skyrocket and many chose to tap into that equity to buy the toys and vacations they could not afford before. Now they owe far more than their property is worth and the spending spree is over and for many, so is homeownership, as the spike in foreclosures indicates. For those that did not use their homes as ATMs, the safety net provided by equity has disappeared, and with it, their consumer confidence.
This new era of frugality is evident in many areas. Last year, at the peak of the crisis, Americans were saving 6.4% of their disposable incomes. Compare that to the less than 1% savings rate during the pre-recession boom and you can hear the fear factor ringing true. It also appears the "nouveau frugal" are searching out cheaper alternatives and cutting spending on frivolous things. A good example of this is the $592 million loss in revenue (over the previous year) experienced by Starbucks in their fiscal year ending Sept. '09, while McDonalds is cited as saying its solid sales growth for the same period was largely due to the surging sales of its lesser priced, premium coffee.
Further contributing to the trend is the notion of sustainability. The adage "reduce-reuse-recycle" certainly does not lend itself to consumerism and efforts to preserve the environment encourage would-be spenders to differentiate between wants and needs. Gone are the days of buying more than you needed, or could afford; replaced now with wearing clothes longer, being content in a smaller home, and hanging on to your old car.
Considering that consumer spending fuels 70% of the economy, this new era of frugal citizens is going to slow an already sluggish economic recovery, but slower is better if it means avoiding the consumer frenzy that brought on the trouble in the first place.
by: Todd Levinson
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