The Second Reason Consumers Aren't Spending

Like many Americans, I’ve cut back on spending. I thought this would be hard. It hasn't been. In fact, I feel a kind of relief, the way you do when an unwelcome guest finally departs.

Obviously I still buy everyday stuff like food, gasoline, music downloads, clothes and school supplies for my kids. If something breaks, I fix or replace it. Occasionally there's a nice bottle of wine or other treat.

But gadgets, novelties, upgrades, and try-me items are out of the budget. I'm happy to save a few bucks, but I've also discovered that there's not much new stuff I actually need. Even more revealing: Many products today simply aren’t worth buying. [See why more companies are likely to fail this year.]

Paging through the Best Buy (BBY) or Target (TGT) circular isn't alluring anymore. It's boring. The thrill of contemplating a new big-screen TV or digital food processor or luxuriant set of sheets is gone. Sure, I could get a little more bass on my surround-sound, another 4 or 5 setting on my blender, or another 100 threads woven into my linens. But why? Would I even notice the difference? After years of serial upgrades, it turns out I can take a breather with no material impact on my quality of life.

Besides, as an experienced consumer, I know that the joy of the purchase will quickly be supplanted by the tedium of installation, troubleshooting, and remote "customer support." On the last laptop I purchased, for instance, I sprung for the integrated Webcam. Didn't need it, just thought it might be fun for me and my kids to play with. Camera fine, software didn’t work. Did online chat with Dell (DELL) helper for 60 minutes. His conclusion: Send the machine back to Dell. Got it back two weeks later. Problem still not solved. Etc. Dell eventually fixed it, with no charge to me, but the ordeal sucked the fun out of a purchase I made for pleasure.

I’ve had similar experiences lately with my cell phone, my camera, my kids’ MP3 players, and that digital whatchamacallit. Worst are the chargers, which seem like a secret Chinese plot to tie America and its electrical grid up in knots. Every gizmo has its own charger, incompatible with all others. There are charger orgies all around my electrical outlets and USB ports, and I’ll probably have to hire an electrician soon to expand my charger capacity. When we go away for a weekend, chargers and their illicit offspring take up more luggage space than clothes and toiletries. Once I bought an expensive “universal charger,” to reclaim control of my appliances, but it came with a bunch of tiny adapters that all got lost within a week. Part of the conspiracy, no doubt.

You might think I live under an especially dark cloud. Not so – virtually everybody I know has a drawerful of recent purchases that are inoperable due to perpetually dead batteries, inadequate household infrastructure or owner ignorance. Maybe I’m a dinosaur, dependent upon ancient software. Perhaps. That’s why I recently ordered Microsoft Office 2007, which is such a great deal that it comes with 8 hours of online training. Free! I don’t even have to pay for the privilege of learning how to use a product I just spent a hundred bucks for! So the next time I have 8 hours free, I’m going to join the 21st century. Like maybe when I retire. Or get laid off.

This is the price of high-tech living, right? Well it’s also the price of low-tech living. I needed to replace two light bulbs in a cabinet fixture. To avoid Home Depot (HD), where they have every manufactured product on earth except the one you’re looking for, I went to my local hardware store. They had about 80 kinds of bulbs, but not the kind I needed. I went to another hardware store, and found it closed on a Sunday afternoon, since that’s obviously a slow time for weekend home-improvement projects. I went home and looked for the tiny bulbs online. They were there, for about $4 apiece. But shipping cost $12, and I wasn’t desperate enough to consent to a ripoff. [See why things may never return to normal.]

So I got back in the car and shambled over to Home Depot, where I only had to ask two associates and walk about half a mile before I found my light bulbs. Then to my surprise, the checkout line was only one person deep, and there was actually a cashier to rescue me from the despair of the self-checkout station.

At that point, it dawned on me: There’s a recession. Shoppers are staying home. It might actually be a great time to shop. Once I can figure out what else I need, I’m rushing straight out and buying it.

Disclosure: No positions.

Comments

[orionoir:]

it will take several generations before the manic consumerism of the past few decades returns. buyer's remorse hits before the checkout: everyone seems to be asking the same question, do i really need this s***? an example: the other day i was shopping for lightbulbs at walmart... after doing the unit price arithmetic (which walmart consistently fails to offer) i selected the cheapest possible bulbs. at a dvd island i came across an odd promotion: al gore's <em>an inconvenient truth</em> bundled with an energy saving bulb, at a lower price than the bulb itself... essentially they were paying me to take the dvd. still, i'm sick of buying dvds: because i never watch them, all they are is clutter.

do economic theories account for negative prices? or is anti-consumerism better explained by the psychology of disgust?

Apr 16 09:37 AM

[happyeconomist:]

I found the most interesting thing about the article were the comments. Not one person (maybe a consumer clinger-on) has talked about going back to turbo charged consumerism.

Seems like three factors: one - we don't have the money to spend any more. Two: we don't have the credit capacity to spend (home equity and credit card lines). Three: many have reached the law of diminishing returns and simply don't want to spend.

If the fundamental consumeristic behavior has changed it will mean significantly slower economic growth over a very long period of time. Slow growth means lower expectations on standard of living, that learning to live with less will be permanent.

Apr 16 09:50 AM

[Griz:]

I gotta comment on Celtin's rebuttal: "You can't confuse sociology with economics". If not driven by sociology, then what is economics? A natural phenomenon? A by-product of our lunar cycle? No, everything and everywhere economics is a man-made phenomenon . The price of things is in what the collective "market" perceives them to be, not where they naturally occur. Markets rally or fall based on the perceptions, and outlook of people as driven by their greed or fear.

Apr 16 09:57 AM

[Larrysyr:]

I'd rather go for a walk in the woods than a walk at the mall any day.

Apr 16 09:59 AM

[steve graves:]

Totally brilliant, not to mention well written post. It reminded me of an excerpt from a 1920s Atlantic Monthly (an article written by Johnathan Strauss, if memory serves) I once came across that bemoaned the absurdities of mass consumerism. And that, of course, was well before there were chargers for anything...

Apr 16 10:27 AM

[gleeson:]

I totally agree with this article, I have felt similarly for a while!
Businesses need to get their prices in line with the current economy.
Restaurants and bars too. Why pay $6 for a pint when I can get 20 friends drunk at my house for $50?!

Apr 16 10:36 AM

[Emerald:]

I recently took a tour of three major malls and a Home Depot store. Employees mentioned that it was "very quiet" and sales were very slow. The only busy store was the Apple store. The same is true at restaurants. Observable facts are the basis for economic observations today. Consumers are cutting back and debt destruction is picking up steam. Overall, stocks are not a good choice today. Invetsment grade corporate bonds and a well diversified municipal bond fund with an average duration of six years or less plus a Ginnie Mae fund are the safets investments will a decent yield. Wait for the next pullback in stocks to buy solid companies with safe dividends like McDonalds, Microsoft, J&J, Pepsico, P&G.

Apr 16 10:37 AM

[sunnsea:]

Where does Apple manufacture their iPods, etc.? I'll give you one guess. That's what's wrong with America. When Office 2007 is at $25 or even less is when you know we have hit bottom. Prices are too high for the newly impoverished Americans who make nothing of value anymore and are clueless as to how to start doing that again in a global economy. Remember Germany runs a trade surplus with China. Why don't you spend time asking them how they do it? Too proud to ask?

Apr 16 10:55 AM

[reluctantQuant:]

Author Rick is right-on with this morning-after narrative.
"It was a great party, but I've got a nasty hang-over, don't really want to drink anymore, and kinda wondering why anyone thought that grenadine and goldschlager was... well.. "

The savings rate will change drastically, because significantly fewer investors will expect capital gains to fund retirement liabilties. Mike Goldstein and his team at Empircal Research highlight an interesting recent article from NBER (Malmendier & Nagel,2009) suggesting that younger generations are likely to shun equity participation based on their "investment life experiences," which has, frankly, been pretty crappy. And 3/4 of equities are held by households headed by someone age 45 or older (wow). So who will take ownership of the "roll-off" portfolio holdings, and with what kind of return expectations? "Trust in equities" has taken a serious credit-downgrade that will not recover for years.

Younger generations will probably just text a confirm to the Fed to add some more TIPS to their account. Vanguard who? Are they on iTunes?

New regime, folks...

--rq

Apr 16 11:28 AM

[billddrummer:]

Excellent article.

I'm dismayed about the trend of the country because I work for BBY (in appliances). What's happening 'on the ground' is that people are buying based on value, rather than on 'latest & greatest.'

We're seeing fewer and fewer casual shoppers. Most of the time, people have done their initial research online, and have pre-selected a couple of items to try out. They don't want to be pushed into something beyond their budgets, and are turning down in-store credit offers (even though they are really good).

That's why the company restructured its store operating model, to provide higher customer service levels at lower cost. By doing that, BBY can sustain profitability with lower revenue growth, and continue to provide good value to investors over the long term.

The company recognizes that the new paradigm for retailing is a material change from the past, and quite possibly a permanent behavioral change in US consumer psychology.

Apr 16 12:04 PM

[Gregman2:]

It would be interesting to know what the savings rate of the Amish are.:-)

Apr 16 12:25 PM

[User 353732:]

I respect your right to opine as you wish and as frequently as you want and admire your untroubled self assurance. Nonetheless, I disagree w/your 3 rd sentence( one cannot, of course, respond to the first 2 sentences because one cannot read your thoughts). This disgreement should not be viewed as impertinence.
America's great economic success, since its founding thru 1990, was, i suggest, based on 4 great and historical virtues, which, at the moment seem to be in serious retreat.
These are:
1. Prudence(where is the prudence in vast public and private indebtedness, that cannot and will not be redeemed?)
2. Justice(where is the justice in bailing out the few, the rich, and the conceited at the expense of the many?)
3. Temperance(where is the temperance in consistently and ostentatiously consuming well beyond not just need but also means? the article above suggests that, slowly, temperance is being rediscovered by some of our fellow citizens and with this rediscovery comes the understanding why temperance is liberating and not confining)
4. Fortitude(where is the fortitude in the desire for instant gratifacation and the clamor for swift and painless solutions to painful economic and social ailments long in the making?)


On Apr 15 10:17 PM Cetin Hakimoglu wrote:

> I know I'm right. I know how economics and finance works. You can't
> confuse sociology with economics.

Apr 16 01:45 PM

[Pstoneki:]

Wow - the economy's bad? I wouldn't know it. I guess I should get out to the mall more. Everything mentioned in the article and comments is how I've always lived my life. I pay cash for everything (except my home) and buy only what is needed when it's needed. I don't do malls. I do tend to spend a lot on experiences (travel, education, concerts) rather than things. My foot print is small and I am happy.

Apr 16 03:44 PM

[friar tuck:]

i live i cape may county, south jersey and ALL the store parking lots are full most of the time. my UPS man is working 50 to 60 hrs a week. i have been shopping on line and at the stores(upscale and walmart) all winter. i have been paying cash for 95% of my purchases, tho. i make custom furniture and have had my fill of orders. i think when gas went to 4.00/gal last summer we all thought it would stay that way so we all stopped shopping because we need gas and now we are quite shocked into disbelief that gas is now 2.00/gal. it doesn't take a rocket scientist to do that math. we are tentative because we're not sure if gas will go to 4 again. if gas stays at 3.00 and under the consumer part of the economy will take off. people in the huge cities are not affected by the price of gas as much as us country folk so they have mistaken and very convoluted ideas as to why the consumer stopped shopping, when the reason is simply the price of gas.

Apr 16 03:51 PM

[rosey99:]

No doubt. Perhaps we will rediscover the liberating nature of fortitude as well, and dare I say it, a certain degree of common purpose? Community even?

Thanks for the excellent post, and the great comments.


On Apr 16 01:45 PM User 353732 wrote:

. . .
> 4. Fortitude(where is the fortitude in the desire for instant gratifacation
> and the clamor for swift and painless solutions to painful economic
> and social ailments long in the making?)

Apr 16 04:36 PM

[TinyTim:]

Humorous article.
I've felt this way for years about frivolous shopping for "toys and gadgets", so I hope they're not waiting on me to turbocharge the recovery.

LOL & very apropos:
"Dell eventually fixed it, with no charge to me, but the ordeal sucked the fun out of a purchase I made for pleasure."
I would rethink the "no charge" in non-monetary terms.

At some point in the 80's, shopping became an end in itself- a mentality. Consumerism / materialism was not just about owning, but about the thrill of the buy.

Apr 16 05:51 PM

[Dave Shafer:]

Speaking as a sociologist, I can assure you we do not know if there are real identifiable changes in consumer behavior. If there are if they will last. And what those changes will mean. You all can opine all you want, but what we are seeing right now is the same as we see in every recession. When people lose jobs they have no money to spend. When people fear for their jobs they cut back their spending. Personally, I have had friends go out of business [restaurants], seen my income dramatically cut back, seen realtor friends leave the field in droves, and seen a general attitude of not spending. At the same time what restaurants that are left are packed, Home Depot is still busy, and economic activity is going around all around me. Wouldn't surprise me to see people go back to their previous spending habits next year nor would it if people's spending habits did change slightly. I would be astonished if their were long-term permanent major changes like not buying automobiles, not eating out, or not using credit. By the way the use of credit cards was not as bad as critics claimed until about 4-6 months ago when the layoffs started.

Apr 16 09:04 PM

[Paul Killinger:]

You write very well. And you consistently manage to capture what many other people are thinking and experiencing themselves. Well done!

Apr 17 07:00 AM

[Paul Killinger:]

So welcome to the new America. I suspect what we're seeing today is going to be with us for a very long time. Now all we need to do is get our government on the same page with the rest of us.

Laid off? Find a new way to make a living. Caught in a dead end? Move if you must, but break out of your trap. That's what Americans have done for generations when things didn't go our way.

Most important of all, DON'T rely on government or wait for them to bail you out. Look what they've done for the poor, literally enslaving them in horrific circumstances. Do you really want to live like that?

Apr 17 07:13 AM

[chennian:]

I like your insights, but I hate your comments about the Chinese conspiracy to have different chargers for different eleoctronics.

Several years ago, Chinese government started an initiative to standardize chargers for mobile phones. You guess who teamed up against it and finally make the initiative fail. Nokia, Motorola and Samsung.

It seems to be fashionable to blame Chinese on everything. It is typically Westen.

Apr 25 09:35 AM