Will Consumer Spending Rebound?
Conventional wisdom holds that this recession marks the end of America's fast-paced spending habits. There will be less consumption, less borrowing, more saving and more thrift. A post-consumer economy, as some have called it. James Surowiecki is not convinced.
[Y]ou could argue that consumption has actually fallen less than might have been expected. Spending did drop off the proverbial cliff in the fall of 2008, in the direst phase of the financial crisis, but it stabilized at the beginning of this year, and has now risen for four months in a row. And much of the decrease in consumption since early 2008 can be traced to a drop in spending in just two categories: gasoline (thanks to lower prices) and cars. The decline in new-car purchases has been so steep that the average life of a car on the road today is at a historic high. This is just one example of how better product quality makes it possible for consumers to cut back without experiencing much decline in their standard of living. We can delay buying a new car because the one we have can be driven hundreds of thousands of miles without problems—making the auto industry a victim of its own success. Nonetheless, the response to the Cash for Clunkers program indicates a certain amount of pent-up demand out there.
Of course, none of this precludes the possibility that our frugal ways will endure even after the economy starts to recover. But there are reasons to be skeptical. Recessions regularly give rise to assertions that consumers will begin spending more responsibly. Toward the end of the 1990-91 recession, for instance, Fortune reported forecasts of the “death of conspicuous consumption.” Time ran a cover story on the return to the simple life, arguing that “after a 10-year bender of gaudy dreams and godless consumerism, Americans are starting to trade down.” Consumer-behavior experts predicted that people would be more frugal in the nineties, and consumers themselves said they planned to cut back on spending. It didn’t happen. A decade later, the bursting of the Internet bubble and the impact of 9/11 led many to predict that Americans would consume less—and we all know how that panned out.
This is a far more severe and traumatic recession — the worst downturn since the Great Depression. So, just as the Depression, as the Times put it, “imbued American life with an enduring spirit of thrift,” won’t this recession make Americans thrifty again? Maybe. But the current downturn, bad as it has been, is nothing like the Depression, which lasted a decade and saw unemployment hit twenty-five percent. What’s more, the notion that the Depression turned Americans into tightwads is largely a myth. In fact, it was after the Second World War that America really came into its own as a consumer society. In the five years after the war ended, purchases of household furnishings and appliances climbed two hundred and forty percent, while between 1940 and 1960 the rate of homeownership rose by almost fifty percent. If the Depression didn’t make Americans wary of the pleasures of consumption, it’s unlikely that this downturn will.
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