Business

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Depression-Era Spending Habits Return—But Will They Last?

December 27, 2008 07:58 AM
by Shannon Firth
Americans are more cost-conscious than ever, but how serious is the problem and how long will our thrifty habits last?

A Shift in Consumer Behavior

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After losing her house, her car and her income, Kelly Dukes, a 27-year-old mother of one, told Reuters, “Now I understand the difference between want and need. I used to go shopping every other day ... but now I know I don't need the same pair of shoes in three different colors.”

Higher gas and food prices, along with elusive credit, also impact Americans’ routine spending. According to USA Today, some people are biking to work instead of driving, and others are switching from designer clothes to their low-budget imitators.

Hard economic times are also forcing some prospective brides and grooms to conserve their cash. A study by Wedding Report Inc. found a small drop in the average amount spent on weddings from 2007 to 2008, suggesting that many couples have had to curb expenses or even postpone their weddings.

Opinion & Analysis: Will the change in buying habits last?

In a Wall Street Journal article, Peggy Noonan responded to claims that we’re now entering the “Great Depression II,” and addressed the prediction that America’s days of prosperity have come to a permanent end. Although Noonan doesn’t ignore that the nation is struggling, she feels this kind of talk is hyperbole and reminds readers that, “In the Depression people sold apples on the street. They sold pencils. Angels with dirty faces wore coats too thin and short and shivered in line at the government surplus warehouse.”

According to Reuters, 1.3 million Americans lost their jobs between August and October and spending decreased by 0.5 percent in October. Surprisingly, saving increased to 2.4 percent.  Richard DeKaser, chief economist at National City Corp in Cleveland, told Reuters, "I think it is tempting to extrapolate the present forever into the future.” However, DeKaser predicts that Americans’ inherent need to “keep up with the Jones” will outlast the current shift toward frugality.

Patricia Edwards, of Wentworth Hauser and Violich, disagrees. Edwards told USA Today that emerging consumer behaviors remind her of the 1970s. "Americans have seen a huge amount of their balance sheet evaporate,” she said. “The effects will be more lingering."

In a blog entry, New York magazine writer Jessica Pressler pointed out that the country has witnessed its highest unemployment rate in 26 years. Even so, she declared, “The Recession is over.” As evidence, she cited the fact that unemployed banker Joshua Persky, a MIT graduate who advertised his qualifications on a sandwich board on Park Avenue, found a job. And wealthy women, Pressler wrote, continue to buy expensive shawls. Take note, however: Her entry is filed under “Wishful Thinking.”

Background: America officially in recession

On Dec. 1, the National Bureau of Economic Research, a nongovernmental group of economists, officially declared that America has been in a recession for the past year. According to the NBER, the last official recession lasted from March to November 2001.
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