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This isn't your grandmother's recession
By KRISTI L. GUSTAFSON, Staff writer
First published in print: Sunday, January 4, 2009
So you've reduced your stops at Starbucks to once a day, put off buying a new car and even canceled that cruise to the Bahamas. At least you had those things to cut back on.
"For the past 20 or so years, we have been on a consumption kick that is out of proportion with anything we've had in history," says Scott Spiker, CEO of First Command Financial Services in Fort Worth, Texas. "It's almost an opiate to which our society is addicted."
When Americans feel financial pressure, they scale back, eliminating not just big-ticket items like cars and homes but things as diverse as morning coffee, unnecessary clothing and high-end meats on the dinner table.
History shows luxuries are the first to go, says Adrian Masters, an associate professor of economics at the University at Albany.
In early December, high-ticket-price purchases posted a 34.5 percent drop from the same time period last year, according to MasterCard's SpendingPulse unit. The division estimates total retail sales across all forms of payment, including cash and checks. This is the greatest drop seen in this sector since tracking began in 2002.
In November, Seattle-based Starbucks said same-store sales in the U.S., or sales at locations open at least a year, dropped 8 percent during the company's fiscal fourth quarter as fewer customers came into the stores.
According to food marketing expert Phil Lempert, people are eating out less and supermarket sales are up nationwide.
"Instead of taking their kids to McDonald's for chicken McNuggets, people are choosing to buy Banquet frozen nuggets at the grocery store and get four times as much for the same price," he said.
According to a study conducted in October by an independent research group for ConAgra Foods, nearly one-quarter of employed Americans are bringing their lunches to work more often this year than they were last year, and 57 percent said given recent concerns about the economy, they are more inclined to do so. In addition, two-thirds of the 1,000 Americans surveyed said the economy has them rethinking their day-to-day food purchases.
During the Depression, silk stockings were a hot and highly desired commodity people gave up, recalls Lillian Yonally, 86.
A resident of the Beltrone Living Center in Colonie, Yonally says that during the Depression, people watched what they ate and made new outfits from old clothes. She remembers her childhood friends wearing "repurposed" clothing.
"Their mothers would take their fathers' coat and make it smaller," Yonally says. "There was time to do things like that and not money to buy new ones."
While today's working mothers aren't likely to start ripping apart sport coats, they are likely to take a pair of shoes to a cobbler for new heels, or have the zipper repaired on an old purse, according to area shoe repairmen, who have seen increased business in recent months.
Vacations were a rarity during the '30s, Yonally says. If anything, people took day trips rather than going anywhere that required an airline ticket or passport. Now, annual vacations — however brief — are as common as a family having more than one car.
"By today's standard, what they gave up didn't look like luxuries, but to them they were luxuries," Masters says. "We live in more affluent times, and there is a new set of affluent goods we could cut back on."
Big-ticket purchases such as cars, major appliances and even homes are being postponed — and the manufacturers of those items are suffering.
"People are nervous about going into debt, so items that require taking a loan are going to struggle," Masters says.
He points to the drowning automotive industry as the prime example. Fancier cars will be hit harder than more basic models, but no manufacturer is going to thrive, he says.
Historically, people don't curb spending solely because they lack funds, says Mark Stevens, author of "Rich Is a Religion" and CEO of MSCO, a marketing firm based in Rye Brook, Westchester County. Real cutting back results from being scared of the financial unknown.
Fear overcomes the desire to consume, Stevens says. "Almost everything becomes a luxury, except what you need for your health or to eat."
And the Consumer Confidence Index fell to a historic low in December. The index, measured by the Conference Board, a private research group, fell to 38 last month, the lowest point since the group began compiling the index in 1967.
One thing that makes the current economic crisis worse than the one in the 1930s is credit cards.
During the Depression, people who wanted to buy goods could do so only within their means. On rare occasions, if they needed to stretch, they could have gotten credit at one store. Today, consumers can rack up debt on credit cards, multiple personal loans and massive mortgages.
"We have the ability now to get in worse trouble than we even could then," Stevens says.
So what's going to lift us out of this barrel and get people spending again?
Time.
When consumer confidence rises and unemployment decreases, consumers pay off debt and stocks rebound. Money is freed up for lenders to distribute and, in turn, more people have dollars to spend.
"They aren't going to go on spending sprees, but they'll spend incrementally and the economy will rebound," Stevens says.
Making something as simple as a venti latte seem like a necessity again.
This isn't your grandmother's recession
By KRISTI L. GUSTAFSON, Staff writer
First published in print: Sunday, January 4, 2009
So you've reduced your stops at Starbucks to once a day, put off buying a new car and even canceled that cruise to the Bahamas. At least you had those things to cut back on.
"For the past 20 or so years, we have been on a consumption kick that is out of proportion with anything we've had in history," says Scott Spiker, CEO of First Command Financial Services in Fort Worth, Texas. "It's almost an opiate to which our society is addicted."
When Americans feel financial pressure, they scale back, eliminating not just big-ticket items like cars and homes but things as diverse as morning coffee, unnecessary clothing and high-end meats on the dinner table.
History shows luxuries are the first to go, says Adrian Masters, an associate professor of economics at the University at Albany.
In early December, high-ticket-price purchases posted a 34.5 percent drop from the same time period last year, according to MasterCard's SpendingPulse unit. The division estimates total retail sales across all forms of payment, including cash and checks. This is the greatest drop seen in this sector since tracking began in 2002.
In November, Seattle-based Starbucks said same-store sales in the U.S., or sales at locations open at least a year, dropped 8 percent during the company's fiscal fourth quarter as fewer customers came into the stores.
According to food marketing expert Phil Lempert, people are eating out less and supermarket sales are up nationwide.
"Instead of taking their kids to McDonald's for chicken McNuggets, people are choosing to buy Banquet frozen nuggets at the grocery store and get four times as much for the same price," he said.
According to a study conducted in October by an independent research group for ConAgra Foods, nearly one-quarter of employed Americans are bringing their lunches to work more often this year than they were last year, and 57 percent said given recent concerns about the economy, they are more inclined to do so. In addition, two-thirds of the 1,000 Americans surveyed said the economy has them rethinking their day-to-day food purchases.
During the Depression, silk stockings were a hot and highly desired commodity people gave up, recalls Lillian Yonally, 86.
A resident of the Beltrone Living Center in Colonie, Yonally says that during the Depression, people watched what they ate and made new outfits from old clothes. She remembers her childhood friends wearing "repurposed" clothing.
"Their mothers would take their fathers' coat and make it smaller," Yonally says. "There was time to do things like that and not money to buy new ones."
While today's working mothers aren't likely to start ripping apart sport coats, they are likely to take a pair of shoes to a cobbler for new heels, or have the zipper repaired on an old purse, according to area shoe repairmen, who have seen increased business in recent months.
Vacations were a rarity during the '30s, Yonally says. If anything, people took day trips rather than going anywhere that required an airline ticket or passport. Now, annual vacations — however brief — are as common as a family having more than one car.
"By today's standard, what they gave up didn't look like luxuries, but to them they were luxuries," Masters says. "We live in more affluent times, and there is a new set of affluent goods we could cut back on."
Big-ticket purchases such as cars, major appliances and even homes are being postponed — and the manufacturers of those items are suffering.
"People are nervous about going into debt, so items that require taking a loan are going to struggle," Masters says.
He points to the drowning automotive industry as the prime example. Fancier cars will be hit harder than more basic models, but no manufacturer is going to thrive, he says.
Historically, people don't curb spending solely because they lack funds, says Mark Stevens, author of "Rich Is a Religion" and CEO of MSCO, a marketing firm based in Rye Brook, Westchester County. Real cutting back results from being scared of the financial unknown.
Fear overcomes the desire to consume, Stevens says. "Almost everything becomes a luxury, except what you need for your health or to eat."
And the Consumer Confidence Index fell to a historic low in December. The index, measured by the Conference Board, a private research group, fell to 38 last month, the lowest point since the group began compiling the index in 1967.
One thing that makes the current economic crisis worse than the one in the 1930s is credit cards.
During the Depression, people who wanted to buy goods could do so only within their means. On rare occasions, if they needed to stretch, they could have gotten credit at one store. Today, consumers can rack up debt on credit cards, multiple personal loans and massive mortgages.
"We have the ability now to get in worse trouble than we even could then," Stevens says.
So what's going to lift us out of this barrel and get people spending again?
Time.
When consumer confidence rises and unemployment decreases, consumers pay off debt and stocks rebound. Money is freed up for lenders to distribute and, in turn, more people have dollars to spend.
"They aren't going to go on spending sprees, but they'll spend incrementally and the economy will rebound," Stevens says.
Making something as simple as a venti latte seem like a necessity again.
CTD.
