More on the “New Normal” of Consumer Spending

A recent Gallup poll provides some interesting insight into consumer spending habits.  With recent consumer spending gauges (namely, the downward revision in Q4 GDP and FEB consumer sentiment) showing renewed weakness, this should be particularly enlightening.

The Great recessions has resulted in a significant change in the way many Americans feel about spending and saving; 6 in 10 Americans  now say they more enjoy saving over spending. (odd that they used the word “enjoy” in the survey but anyways..) This further bolsters a shift that began in December 2008 and is a reversal of sorts from the previous decade.  This should not be a surprise given how indebted American households became in the early 2000s.  They certainly “enjoyed” spending.

source: Gallup

Moreover, more than half of consumers across socioeconomic groups say they are continuing to spend less. The number of people who claim these new spending habits will be permanent is increasing since April ’09. Women are more likely to say their new reduced spending habits will be their “new” normal. And if you are not already aware, women tend to control household spending, in aggregate.

source: Gallup

Gallup notes a changing consumer psychology:

Essential to the “go forward” economic outlook is whether consumer spending will return to pre-recession levels or reflect a “new normal” spending pattern. The significant shift to saving in American preferences, as opposed to spending, suggests an important change in consumer psychology. Most likely, this change in consumer preferences results from the severity of the recession, the financial crisis, many Americans’ severe loss of wealth in their homes and investments, and the significant change in the availability of credit throughout the economy.

At the same time, many consumers also say their spending behavior has changed. More than half of the nation’s consumers across socioeconomic groups say they are continuing to spend less, despite the claims of many economic observers that things are getting better and recovery is underway. Two-thirds of consumers who are spending less — and 38% of all Americans — say their current reduced level of spending is their new, normal spending pattern. And significant percentages of Americans across all major demographic groups say this is their new normal.

I’m not advocating having one survey’s results drive your investment or trading decisions.  What is interesting is the mounting evidence (we’ve been writing about this for a while now) that consumer spending will not bounce back during economic “recovery” as it has in the past.  Frugality is a new theme that must be incorporated into models.  I very much doubt the market is  pricing this correctly.  Jobs and spending continue to disappoint.   The economic consensus calls for a slowing of grow over the 2nd half of 2010, but it is truly taking into account a weak consumer?


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