Over the past few months I have seen more and more data indicating that Americans are cutting back their consumption in the face of the deteriorating economic situation. Retailers, restaurants, car companies, airlines – it seems as if everybody is feeling the pain. Just last week the Wall Street Journal called the trend “U.S. Retools Economy, Curbing Its Thirst for Oil.”
I am wondering if maybe this trend will last beyond the current economy and represent a new, or renewed, sense of responsibility in America. The past few decades have been an orgy of consumerism in America (and much of the developed world, but I’ll focus on America simply because I know it best), as people lived beyond their means, purchasing things they didn’t need and couldn’t afford. Possibly the best quote I have heard on this trend came from Art Wong, a worker at the port of Long Beach, who was on NPR’s Marketplace:
You know, we’re being stretched, and I turn to my kids every so often and I ask them, how many more pairs of jeans do they need? How many more handbags can they buy? And how much room do they have in their closets? And they keep going, and they keep buying, and the port keeps seeing more and more cargo coming through here.
This consumption frenzy brought with it a number of problems. There were environmental considerations, both from the production of consumer goods and from the gasoline sucked down by the SUVs that were a major outlet of purchasemania. There were price dislocations from people purchasing items (homes, Tiffany bracelets, fancy meals) that they couldn’t afford. There were macroeconomic impacts as we financed our purchases with overseas capital. Finally, I think there were moral and psychological consequences (not surprising to regular readers of this blog) from an entire population giving up on any sort of self-restraint or thought for the future.
With gas prices above $4 per gallon and economic growth stagnating, our reduced consumption is not surprising. But maybe, just maybe, this decline in purchasing represents a broader change, a sense that untrammeled consumerism is simply unsustainable. Perhaps people were jolted awake by the impact on the environment, or the national security ramifications of our addiction to oil, or the deflation of the housing bubble. Are Americans now looking beyond their own material wants?
Maybe, and maybe not. Perhaps there is no broader sense of responsibility, but rather the inexorable force of economics. Maybe people still don’t care about the environment or national security, and all they really want is a bigger Jet Ski, but they simply no longer have the money to satisfy their wants. That is certainly what the economists think. “We’re going back to the good old days of living within our means,” said David Rosenberg, chief North American economist for Merrill Lynch. Adds another:
“We’re seeing the birth pangs of a new economic structure,” said Neal Soss, chief economist for Credit Suisse First Boston. “The next year or two or three will be about the transition to a new equilibrium. Consumption by households will grow more slowly than their incomes, which is the exact opposite of the last 25 years when consumption grew faster than incomes.”
Although I would prefer to think that we are getting more responsible, and that issues larger than our checkbook are driving these new spending patterns, I suspect that A) the economists are right; and B) it may not really matter. Even if economics are behind the change, those economic conditions show no signs of changing in the near future, or possibly the medium future. There is even a theory that this shift is permanent, and that America’s days of being an economic powerhouse are over. “The world has become multipolar,” according to UC Berkeley economist Barry Eichengreen. “Our dominance will decline.” Jared Diamond, of Guns, Germs & Steel fame, even says that the developed world only has 30-50 years of first world living before we outstrip our own resources.
Either way, this change in spending, this “retooling of the economy,” looks like it will be with us for a while. This has tremendous implications for companies that sell to consumers. Think about:
- Utilities dealing with decreased demand for energy
- Car companies finally forced to produce smaller cars
- Construction with a focus on energy efficiency and green materials
- Appliances that are cheaper, smaller and use fewer resources
- Consumers actually turning down credit card offers because they aren’t buying things
- Retailers changing their product assortment
- Discounters (Wal-Mart) gaining market share at the expense of stores that catered to the overreachers (Neiman-Marcus)