Degrees of recovery

Over the past year, we’ve seen numerous studies, surveys and stories which suggest the frugality inspired by the current recession will remain, once the recession is over.

Recently, another such story appeared in the New York Times, which I thought did a great job of “connecting the dots.” Rather than simply profess gloom and doom, the piece provides some cause and effect reasoning behind the long-term changes in consumer behavior, driven by the depth and breadth of the current recession. I don’t agree with all of the assertions in the article… but some points are difficult to argue:

• Lower-income households are finding it more difficult to borrow
  


• Higher-income households no longer feel as wealthy
  


• There’s still a lot of debt out there, which throws a pall over the potential for a strong recovery

But keep reading, because I again sense there are veins of prosperity and optimism ahead.

Implications: Many pundits have compared the recession of 2007 - ______ to the Great Depression, in that the depression installed a sense of thrift which lasted for decades—indeed a generation—after the event was over. And this NY Times article points-out some of those same similarities.

But I think it’s dangerous to assume that consumer behavior will be forever altered. Recoveries will vary by region, by category of employment (or unemployment), and even by family attitudes and lifestyles. If you’ve lost a home or job or both, you’ll probably come out of this recession with a long-term sense of caution, relative to the way you spend money. If you’re employed in an industry (or region) that enjoys resilience, even through tough economic times, you might be “living large” right now, due to the deflation that has occurred in the price of so many products and services.

“Will the current sense of frugality continue after the recession?” That’s a terribly framed question, because it begs for a yes-or-no answer. This question should be a series of inquiries… and open-ended:

• “How long do you think the current sense of frugality might last, after the current recession ends?” (1 year? 2 years? 3 – 5 years? More than five years? Forever?)
  


• “Do you think that a lasting sense of frugality will be pervasive throughout the entire population? Or do you believe that some consumers (or households) might return to previous habits faster than others?”
  


• “What kinds of families/households are more likely to return to pre-recession spending/consumption habits faster? And which are less likely?”

To suggest that an entire population will alter their behavior in unison—in lock-step—might be a premature assumption. I personally do not believe that this recession, severe as it has been, measures up to the depth and breadth of the Great Depression, or other calamity seen in the 20th century. Our grandparents and great-grandparents knew, first-hand, and broadly, what it was like to do without. Whether through the scarcity of the Dust Bowl and depression, or the rationing that resulted from a World War, there was a pervasive absence of access to even the most basic of products, services and commodities. This lack of access touched an entire generation, with only isolated exceptions.

Only history will decide for sure… but I suspect that in the future, this recession will be reviewed as a stratifying event, creating a more conspicuous chasm between the haves and have-nots, giving birth to new companies (and perhaps industries) which served needs and priorities that were previously either not realized or satisfied. And I sense a consumer renaissance… where value is again defined by the customer who buys a product, rather than the company that sells it.

Mike Anderson