[Roy Fokker]

Adrienne Radtke plans to keep riding her bike to work even if gas prices drop. Steve Pizzini got rid of his Cadillac Escalade in favor of a 16-year-old Acura and doesn't expect to have another gas-guzzler.

"I had a paradigm shift," said Pizzini, a financial analyst. "I spent the money on a nice car. But to me, it's not worth it. I don't think I will go that route again."

Every economic downturn changes shoppers in some way. But this time, experts say the new behavior -- fueled by higher gas and food prices, tightening credit and a slumping housing market -- are the most dramatic and widespread that they have seen since the mid-1970s.

So retailers, marketers and investors are all trying to figure out which habits shoppers will keep and which will they drop when the economy recovers. Will the people who switched to store-brand ice cream go back to Breyers or Edy's? Will shoppers return to department stores or keep looking for labels at T.J. Maxx?

"We are looking at stuff that reminds me of the 1970s," said Patricia Edwards of investment manager Wentworth Hauser and Violich. "Americans have seen a huge amount of their balance sheet evaporate. The effects will be more lingering."

Full story



Contrary to Keynesians, consumers are behaving exactly like how Gary North said they would:

What gets hammered in a recession is commodities. They are at the bottom of the supply chain. They are price competitive. There is usually a cheaper commodity that can be substituted. In November, 2001, the month in which the most recent recession ended, the Commodity Research Bureau’s index bottomed at 180. Today, it’s over 340.

If you are a commodity, expect trouble. If what you do for a living, others can do almost as well, and if they are in a position to cut their price, you’re in trouble.
One thing is certain: If you are on salary, you will become a net liability for your company. You are a fixed expense. Meanwhile, corporate revenues will fall.
If you are on commission, the 16 fat years are about to end. For you, the news is bad . . . unless you work for an auction firm specializing in liquidating bankrupt companies.

The worst thing about a recession for most Americans is the ticking of the debt meter. It doesn’t stop ticking just because the economy is in recession. It ticks louder.

People freeze up when they get scared. They put off making purchases. They cut expenses. But there are limits to what they can do. They live so close to the edge of their budgets that there is not much fat to cut in relation to disposable, after-tax income. The debt meter ticks.

This is why the auto industry is always hit hard in recessions. People can forego buying a new car.

Consider the American-owned car industry today. Ford and GM are experiencing huge losses. Chrysler joined with Daimler. We are in a boom.

The housing market has turned people’s homes into ATMs. People borrow their homes’ equity. But this process has begun to slow down. When equity begins to shrink in the next recession because of falling home prices, it will dawn on a growing number of Americans that they have been eating their seed corn.

What is really scary in the housing market in a recession is the increase in illiquidity. People refuse to face reality: Their real estate is worth less than before. When they decide to sell, they hold out for last year’s price. They sit. They grow fearful. They still sit. Then they grow panicky. Eventually, they are forced to move: a lost job, a transfer, a foreclosure, or something that leaves them without recourse. They may walk away from the house.

They lose their credit rating when they do.

I bought my home in a foreclosure in 2005. I got a very good price.
The number of foreclosures is already over a million a year, up from 650,000 a year ago.

The "wealth effect" – spending more when you feel richer – has been fueled by rising prices on housing. This is about to end, all over the country, but especially in coastal cities.

I feel sorry for people in the early years of their careers. They have just bought their first homes. They have not faced a recession. They think that household budgets, while tight, will get looser as they get older. Ah, youth! They will soon have a rendezvous with reality.

Read full article - Fear During a Recession.

[ingelein]

The end of an era. Maybe a good thing, painful as it is.

[CHATSDALE]

if people are spending less this will negate the desired effect of the income tax rebate
this is what creates the snowball

[ingelein]

People used the rebates to pay bills, because they got behind, because they don't have jobs, because the jobs have been shipped to China and India. When the poor and middle class can no longer afford cheap goods at Walmart , we are all in trouble.

[mshultz]

I disagree with the premise that taxpayers have to spend the rebate in order to stimulate the economy. My rebate is not under my mattress, it was deposited into my checking account. The money is not being stored inside the bank's vault, it is being invested in some manner, such as loans to other consumers.

[multicollinearity]

As for less spending, it's about time. While it's hard for the economy, Americans need to rediscover this thing called saving for a rainy day.