Lest we forget, the prior “expansion” was illusory in nature, fueled by debt and, ultimately, bogus paper wealth, the vast majority of which has vanished for the foreseeable future, “foreseeable” being the better part of the next decade. Those home prices, those stock portfolios, gone for a very long while. What’s still here, of course, is lots of debt and insecurity. And let’s not forget that most people’s incomes were not growing to begin with (average HHI actually declined from 2002-2007). Also, it remains to be seen what sort of shape the United States will be in later this year when government stimulus funding runs its course. All eyes will be trained on the unemployment rate, as a jobless recovery could prove to be no recovery at all.
So caution, which was already in place before the financial meltdown of September 2008 (as any Vegas operator will tell you), is still the operative consumer mindset. For all but the frothy few, and we’ve already seen what an oversupply of froth will do to a market (as any Vegas operator will tell you), a merciless search for the best deal will continue to be part of all discretionary activity.
The new mindset was admirably summed up in an article in The Wall Street Journal last month titled “Spendthrift to Penny Pincher: A Vision of the New Consumer,” which used the example of television, where Scripps Network Interactive is phasing out the “Fine Living Network” and its non-stop tours of rich neighborhoods and playthings such as diamond-encrusted sinks and replacing it with the “Cooking Channel” as emblematic of the new Age of Value. John Lansing, the head of Scripps, said the network was reacting to a shift in consumer behavior from “aspiring to material wealth to aspiring to a life better lived”.
“We seem to be at a cultural inflection point that we haven’t seen since World War II,” commented Jim Taylor, vice chairman of market researcher the Harrison Group.
Last November, Harrison surveyed 1,800 affluent Americans and found that 48 percent think they could suffer major financial losses in the future.
“People are getting used to being careful,” Taylor said, “and I don’t know how you undo that.”
John Quelch, a Harvard marketing professor, added, “The more people discover more cost-effective ways to live, those coping mechanisms become engrained.” He said that while few companies expect change as long-lasting as the Depression produced, neither do they expect the changes from this deep recession to be fleeting.
One “coping mechanism,” the Journal pointed out, is that Americans are starting to save more. In October they saved 4.4 percent of their disposable income, compared with an average annual savings of 2.7 percent over the last 10 years, and as low as zero in some years.
It’s not that people are staying home, reading by candlelight and taking up music lessons for the purposes of entertainment and diversion. The holiday season saw record crowds at malls, but spending activity was less than the turnout would have suggested. The prospect of a good deal is what gets people out of the house. Witness the strength of discount airlines relative to the big-name commercial carriers in the past quarter. (Southwest’s traffic was up 12 percent in November, Delta’s was down 7 percent, to take just one comparison.)
Of course, the obsession with value was with us long before the recession, and, ironically, the case could be made that the consumer’s ability to find it is at the heart of the very things that are making them feel insecure in the first place. In “The Price of a Bargain: The Quest for Cheap and the Death of Globalization,” author Gordon Laird points out the risks inherent in basing an economy as large as the United States’ on 70 percent consumer spending, where consumers derive spending power from the work of low-wage factory employees from abroad. It’s inherently unstable because: a) only low-cost producers can compete (which depresses wages at home); and b) prices inevitably rise as workers demand a better standard of living and variable costs such as energy increase.
“Recovery isn’t about going back to normal 2007,” says Laird. “Today’s recession that began in 2007 and intensified in 2008 is really part of a phase change, it’s really telling us about how many households are overspent. The consumer is a fundamental resource in today’s economy. It remains to be seen whether the consumer is a renewable resource. I’m not predicting imminent collapse in that regard, but I think it’s unwise for people to go back to shopping like they did in 2005. That’s just silly.”