There’s hope that after two years of hoarding money and paying down debt, consumers might be ready to loosen their purse strings in 2011.
They’re suffering from a case of “frugality fatigue,” according to Lynn Reaser, chief economist of the Fermanian Business & Economic Institute.
“Consumers have a lot of pent-up demand,” she said, addressing assembled business leaders at a 2011 economic forecasting roundtable hosted by The Daily Transcript on Dec. 10. “You can only get the refrigerator fixed so many times.”
The competing philosophy expressed was that the behavioral adjustments learned during the Great Recession could become permanently imprinted on consumers.
“Behavioral change occurs with crisis,” said Joye Blount, vice president of U.S. Bank.
However, she said her customers seem to be decreasingly risk-averse.
“We’ve seen this calendar year a lot of money on the sidelines, people waiting for the right opportunity or looking for the right investment,” she said. “In the third quarter we’re beginning to see clients and customers have conversations about incurring a little more risk. That comes along with a confidence that we’re regaining in the market, which is very positive.”
Specifically, Michael Mellace, CEO of Mellace Family Brands, a Carlsbad-based company that distributes nuts for trail mixes and other food products, said consumers have become far less brand-conscious.
“The quality gap has narrowed,” he said. “They certainly don’t see it being worth that much effort for them to buy a brand name. If they can preserve a few dollars in their pocket by not buying a brand name, they’re going to do it.”
Conversation steered to behavioral patterns of today’s young adults, both in terms of what they value, and how they’ll be affected as consumers by habits learned in these early years of their adulthood.
Some panelists said young adults would be more likely to continue consuming cautiously, while others noted that children of the baby boomers are simply wired differently than their parents were.
“There’s a whole generation of millenials that -- as they’ve gotten to early adulthood, the biggest population cohort in America -- are always going to be fixated by this idea that their ability to spend money is limited, as they go forward, whether it is or not,” said Gary London, president of The London Group Realty Advisors.
In any case, consumer spending in the mid-term will not reach mid-2000-era levels, which will adversely affect economic growth, he said.
Young adults simply have a different outlook on money than their parents did, Mellace concluded.
“They want to make a difference in the world,” he said. “They’re all about social responsibility and wanting to get involved in causes and products that make a difference and work for employers who make a difference. There’s a different attitude towards money. It’s not about who has the bigger car, or the nicer car, it’s about how can I be most effective with the money that I have and how can I make the biggest difference in this world.”
For consumers of all ages, the Great Recession provided a teachable moment.
“In the past few years, we had seen plenty of evidences of people living beyond their means,” Blount said, reminding the panel of how over-leveraged businesses and individuals alike had become in the last decade.
Anecdotally, she’s noticed that people are now more engaged than ever with their personal finances, meeting with their money managers far more frequently and generally taking an active role in their own asset management.
“There’s more collaboration in the process, which generates a healthier outcome for everyone,” she said.
Representing the defense industry, Rear Adm. William French, Commander, Navy Region Southwest of the U.S. Navy, said predatory payday lenders were particularly damaging to young sailors. He said he’s proud of the Navy’s efforts to better educate its members about managing their finances.
“What we found, with people deployed longer and more often, was that their spouses were at home, and they were in need of that same training,” he said. “That’s where we turned our attention more recently.”
Generally, Reaser said Americans have made considerable improvements to their personal balance sheets in the last two years, which should provide future stability for the economy, even if levels of conspicuous consumption don’t return.
“And we’ve also seen boosts in the stock market so our 401(k)s emerged from when they were 201(k) plans,” she quipped.