While the New York Times gives plenty of caveats, its story,”Economy Fitful, Americans Start to Pay as They Go,” says the American love affair with debt has gone sour:
But now the freewheeling days of credit and risk may have run their course — at least for a while and perhaps much longer — as a period of involuntary thrift unfolds in many households. With the number of jobs shrinking, housing prices falling and debt levels swelling, the same nation that pioneered the no-money-down mortgage suddenly confronts an unfamiliar imperative: more Americans must live within their means….
The shift under way feels to some analysts like a cultural inflection point, one with huge implications for an economy driven overwhelmingly by consumer spending.
While some experts question whether most Americans, particularly baby boomers, will ever give up their buy-now/pay-later way of life, the unraveling of the real estate market appears to have left millions of families with little choice, yanking fresh credit from their grasp.
“The long collapse in the United States savings rate is over,” said Ethan S. Harris, chief United States economist for Lehman Brothers. “People are going to start saving the old-fashioned way, rather than letting the stock market and rising home values do it for them.”
In 1984, Americans were still saving more than one-tenth of their income, according to the government. A decade later, the rate was down by half. Now, the savings rate is slightly negative, suggesting that on average Americans spend more than their disposable income.
A telling anecdote: a couple that earns $55,000 a year got into debt keeping up appearances and has had to cut back considerably. They now looks at a Cadillac-owning (likely leasing) neighbor with pity rather than envy, imagining that he too is over his head.
If conspicuous consumption (at least in the middle classes) is no longer a barometer of success, that will create fundamental challenges not just for marketers but also for manufacturers. One implication: consumers will be less willing to trade up to new products, and will expect new purchases to last longer. That may lead to a willingness to pay somewhat more for something with the notion that it is an investment rather than something they will keep for a year or two. Put more simply, buyers will increasingly think of goods as durables rather than disposables.