U.S. Consumers Choosing Not to Spend

US consumers have responded to the global economic crisis by curtailing their expenditures, paying down debt, and saving more—all logical responses to a recession. Yet most consumers have acted by choice, not necessity, according to McKinsey. Spending, saving, and debt averages are not at abnormal levels today but rather returning to long-term trends.

It was the behavior of US consumers during the past two decades, our research shows, that was the aberration. The return to traditional spending patterns will cause companies to adjust to a fundamentally altered playing field.

In a McKinsey survey conducted in March 2009, 90 percent of the US respondents said that their households had reduced spending as a result of the recession—33 percent of them “significantly” so. The survey, which included 600 households in three consumer segments comprising around 40 percent of all US homes, found that 45 percent of those who reduced spending did so by necessity, 55 percent by choice.

Comments

[Mad Hedge F...:]

I'm not surprised. I spent the evening with Dr. Janet Yellen, the president of the Federal Reserve Bank of San Francisco. She thinks that thanks to the government’s tax cuts and spending programs, we will be out of the recession by the end of this year. After massive inventory liquidation, the auto industry in particular is poised for a rebound. Financial markets are now in better condition than we imagined possible six months ago. However, the pace of the recovery will be frustratingly slow, and it could take several years to return to full employment. Since the majority of the Fed board members feel that inflation will be stuck at 2% for years to come, deflation presents a greater risk than inflation. We are not by any means out of the woods yet. Rising energy prices and interest rates are a potential drag on the economy. Commercial real estate is at the top of her worry list, as falling rents and capital values could create a downward spiral, further impairing the banks. China’s wishes for an alternate reserve currency are impractical. Answering questions as only a UC Berkeley professor can, she further confirmed my belief that we are looking at an “L” shaped recovery at best. However, she did pour some cold water on my idea that the TBT has further to run. “Inflation running up to untoward levels doesn’t make any sense,” she averred.

Jul 01 11:36 AM

[conceptwizard:]

Good info "MHFT". Straight from the Fed. We are in a "L" Depression yet to be determined of size, lenght & scope with deflation as the main issue.
I agree with most of what she is saying. I think however they are being cocky about the dollar, China has more clout than they estimate, they are already making changes.

The "At Best" part of the "L" does not sound encouraging.

Jul 01 02:20 PM

[User 280012:]

IF deflation is a greater concern than inflation how will gold and other hard commodities respond ?

does'nt that nullify the reason to go long TBT and GLD ?

On Jul 01 11:36 AM Mad Hedge Fund Trader wrote:

> I'm not surprised. I spent the evening with Dr. Janet Yellen, the
> president of the Federal Reserve Bank of San Francisco. She thinks
> that thanks to the government’s tax cuts and spending programs, we
> will be out of the recession by the end of this year. After massive
> inventory liquidation, the auto industry in particular is poised
> for a rebound. Financial markets are now in better condition than
> we imagined possible six months ago. However, the pace of the recovery
> will be frustratingly slow, and it could take several years to return
> to full employment. Since the majority of the Fed board members feel
> that inflation will be stuck at 2% for years to come, deflation presents
> a greater risk than inflation. We are not by any means out of the
> woods yet. Rising energy prices and interest rates are a potential
> drag on the economy. Commercial real estate is at the top of her
> worry list, as falling rents and capital values could create a downward
> spiral, further impairing the banks. China’s wishes for an alternate
> reserve currency are impractical. Answering questions as only a UC
> Berkeley professor can, she further confirmed my belief that we are
> looking at an “L” shaped recovery at best. However, she did pour
> some cold water on my idea that the TBT has further to run. “Inflation
> running up to untoward levels doesn’t make any sense,” she averred.

Jul 01 10:35 PM

[jayminho:]

this is good. a sign of education.

Jul 02 09:53 AM

[Ted Hurlbut:]

Consumers are doing what they have to do to get their balance sheets in order, and that's not a bad thing. They will resume spending when they once again feel comfortable with their financial position. While we're not likely to see a return to low single digit/negative savings rates again, I do not see consumers being so fundamentally shaken that they significantly pull in their horns over the long term. we are still an aspirational society.

Jul 02 04:24 PM