Changing Consumer Spending Habits

An economist once told me that the factual "story" behind any economic report or event is almost entirely based on sociology, the study of how human society actually operates and reacts to outside actions. It is certainly apparent that when the economy is either "booming" or "busting," the spending habits of the global consumer normally change dramatically.

Those who watch our national economic situation know that our nation's economic foundation is based on whether the American consumer is in a spending mood; two-thirds of our national economy is based on whether the public is willing to spend their hard-earned dollars at the nation's retail centers, car dealerships, or within the service industry sector. But when things start to go bad, as they have over the past 18 months, spending habits can change drastically, damaging the economic infrastructure until consumer confidence finally starts to mend.

There are some economists and business leaders today who believe that the current global recession has not only forced consumers to prioritize their spending habits but it may have changed the consumer consciousness to the point that American businesses will have to determine whether or not they are dealing with a customer base with an entirely new spending attitude. Some business leaders believe that is the case.

The CEO of the J.C. Penney Company recently gave an interview to voice his concerns about today's shifting consumer behavior. Myron Ullman recently said that the U.S. consumer has a lot of anxiety and is very concerned about how upcoming changes in healthcare may affect their finances in the immediate future. He continued by saying that consumers are suddenly coming to the realization that "they may need to save more than they had originally planned. Their spending habits have changed to reflect this for the foreseeable future."

He's not alone; the corporate leadership of Best Buy, Drugstore.com as well as CEOs from the service industry (Hotels, Theme Parks, Restaurants, Rental Car Services) are all starting to realize that the U.S. consumer may never return to the spending habits of the past and that a change in their selling and advertising strategies might be necessary.

While people will continue to consume, they question now is what will they buy, when will they buy and where will they buy. Name brand products are taking a backseat to generic or store brand items. Malls are beginning to show signs of weakness - more and more stores are closing while consumers make their way to other, cheaper alternatives. Instead of going to one of the major mall's "anchor stores," they are now heading to places like Wal-Mart, Target or K-Mart to purchase the things their families "need" rather than the things their families "want."

The economy is beginning to show signs of life for the first time in many months. Consumer spending was up in August by the most since 2001, indicating the biggest part of the economy is starting to rebound from its worst slump in almost 30 years. The 1.3 percent increase in purchases was larger than forecast and followed a 0.3 percent gain in the prior month that was bigger than previously estimated. By the way, incomes were also up at a 0.2% rate.

While all that may be true, the level of consumer confidence continues to be the key question. As I mentioned earlier, economics is all about sociology and until the American consumer starts to feel more positive about spending their money at the "corner store," restarting the U.S. economy will just have to wait.