Is going cheap the new chic?
Thursday, 06. 18. 2009 – Category: Enversa
The recent recession being touted as one of the longest and deepest in US history is supposed to have a dramatic effect in altering consumer spending habits. Economists and marketers are concerned that consumer spending habits will have changed and that the tightening of the purse strings will continue long after the recession has ended and the economy is recovering. They are saying goodbye to five dollar lattes and high-end luxury items, and predicting a new wave of frugality.
Are they wrong? Consumer spending has changed and over 60% of households have done some belt tightening and examined where their monthly budget is spent. But predicting future spending habits is akin to forecasting the weather; it’s a form of fortune telling that gives anyone a fifty/fifty shot at being right. Most economists may be trying to play to popular opinion and media bias toward a more thrifty nature. After all, it’s difficult to tout the luxury market when unemployment is rising, the dollar is sinking and people are losing their homes to foreclosure.
The fact remains that people are still spending money. Yes, it is true that spending is down from an all time high, and the recession is having a deep impact on current consumer spending habits. However every time a bit of good economic news hits the airwaves, consumer confidence rises and with it a corresponding uptick in spending. What most people will find is that the belt tightening will create savings cushions that will be spent on big ticket items once the media begins reporting that the recession has ended and the economy is expanding. Indeed consumer confidence is rising in the third quarter of this year because of media reporting that economists are predicting the recession is over and the economy is on the road to recovery, despite the bankruptcy of some big name corporations.
People may choose to spend their money differently in the future, but they will spend their money. As the economy shifts into a long term growth period, the people who may have overspent will make corrections in their budgets, and the people who are aging into higher spending brackets will put their money into the economy. What remains to be seen is how the recession affects the retiring Boomer population, and their spending habits. Will their retirement accounts recover with the stock market, and allow them to return to pre-recession spending levels?
Or will they listen to the advice of their parents who grew up with the memory of the Great Depression and scrimp? Chances are the Boomers who began the last growth economic cycle will remain a huge part of the recovery, and as their retirement portfolios recover, they in turn will put their money back into the economy. Spending habits may never reach the same levels again, yet before the crash of 1987, spending was at an all time high for certain sectors. Some businesses contracted, others disappeared, just the same as what is occurring today. What will remain are stronger companies with good balance sheets offering great deals for consumers. Cheap will always be chic as everyone hunts for bargains, but spending will not stop once the recession ends.
Marc Pickren is the President of Enversa- a performance-based marketing agency.
Tags: Consumer spending, Economists, Marc Pickren, recession, retirement accounts