Big Changes In Consumer Buying Psychology

Thursday, March 5, 2009, 12:54 AM | Leave Comment

American buyers have pulled back like rarely before. Friday’s government report on the economy showed that consumer spending fell at an annual rate of 4.3% in the fourth quarter from the third quarter. That came on top of a 3.8 % decline during the previous quarter, which itself was the biggest decline since 1980. Even during the recession of 2001 – even during the months just after 9/11 – this number never turned negative.

The U.S. economy started the new year on weaker footing as recession-shocked Americans retrenched further, forcing retailers to ring up fewer sales and factories to cut back production.

The Federal Reserve‘s new snapshot of business conditions nationwide widely known as its Beige Book, released recently, suggested the country’s economic picture has darkened during the past two months. The outlook appears equally dim.

Many believe the economy will continue to shrink through the rest of this year and into the first quarter of next year. At 12 months and counting, the current recession is longer than the 10-month average length of recessions since World War II. The record for the longest recession in the postwar period is 16 months, which was reached in the 1973-75 and 1981-82 downturns.

social-psychology-of-consumer-behaviorRetail sales have been hit harder than at any time the last half a century, since the 1960s. January was the fourth consecutive month of historically steep year-over-year declines in sales. Prior to this losing streak, the worst such performance had been in March 1967, when sales fell 5.2%.

Besides retail sales, auto sales were down sharply in most Fed regions. Car buyers in many areas had difficulty obtaining financing, a direct result of the credit crisis, the report said.

Since last October and before, it’s decline in spending every step of the way:

  • October: down 5.9%.
  • November: down 8.4%.
  • December: down 10.5%.
  • January: down 9.7%.

Economists say it’s bad news. For the nation’s economy, consumer spending is one big push up. Many add that it will get worse before it gets better. That’s bad news for those who had hoped people might once again flood stores to save the U.S. economy from recession.

Many more economists say it’s a big recession but not as big – or as long-lasting – as during the Great/Worst Depression of the 1930s. Consumers realize they cannot spend endlessly anymore, and as a result, they are retrenching or cutting down, looking for durability and value.

In a Nutshell
Some economists expect consumers to start buying again toward the end of the year, when job losses are expected to taper off. That’s when people will feel better about their income prospects.

By then, it’s possible consumers may have changed their buying habits for the longer term. For many who lived through the Great/Worst Depression, the frugality never ended. For our and our kids’ generation, the new mantra may be: “Stop before you drop.”

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