Wednesday, December 2, 2009

Permanent Frugality? Not so fast

Consider the following article:
As consumers cling to wallets, some analysts say it's permanent
The New Normal.

It's a phrase used in recent months by analysts who see slower growth and lower expectations for business for years to come.

But other observers reject that, saying the U.S. will see a strong recovery with few lingering effects from the recession. They point to the stock market's rebound as justification of that optimism.

What they do agree on is that this year's Christmas sales will be an early signpost for the future.

So far, it's been a tough year for retailers. People largely stopped buying in the spring and summer, but local shop owners are reporting that people are starting to relax a bit.

Dawson Grimsley, chief executive of Wichita's Davis-Moore Auto Group, has his own barometer of buyer anxiety: He sold two 425-horsepower Dodge Challengers one day last week.

That tells him there are a few people out there who aren't worried about the economy anymore.

As for the rest, it will take time, he said, but they will be back.

"It will take time to be back to normal," Grimsley said. "But when it does get back to normal, they will buy - they love cars, they love clothes, they love to eat out."

Consumer confidence really is hanging in the balance, said Michael Stead, Bank of the West's head economist and director of capital markets.

Overall, he's fairly optimistic that most indicators are moving up and that unemployment will start dropping soon.

But, he said, consumer spending is 70 percent of the economy. How much people spend this Christmas could say a lot about how the nation recovers next year.

"If I see another drop this Christmas, it will mean consumers are getting their debt levels down, and that puts a little damper on economic growth. ... My hope is that if we come in flat versus '08, we will continue to move forward in a reasonable manner."

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One cannot make a prediction focusing only on today, this month, and next year. A new consumer generation is created with every college graduation. That means, every year. While the party might seem to be over, it cannot be an absolute analysis. The next boom cycle might be just around the corner. This could still be no more than a momentum contraction in consumption triggered by a recession. I'm not very optimistic, but just suggesting that at a slightest sign of prosperity - those who can might jump on the affordable opportunities presented to them by the recent slump.

Cheers!

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