Newsweek in an upcoming article has taken note of a changing trend. Americans who in the past several years would choose certain items important to them on an individual level and spend more, this behavior is changing. Expensive coffee drinks, shoes, entertainment are some examples. People with a passion for a product have had no qualms about spending more.
With easy access to credit, especially home-equity loans, middle-class Americans began regularly trading up for items that appealed to them, buying food staples at Kroger but splurging on Kobe beef at Whole Foods. Suddenly, everybody was a luxury consumer — for certain items. But as the saying goes, what goes up must come down. Now many of those same Americans who traded up are shunning luxuries and returning to basics… Blame the overall slowdown in economic growth, the growing scarcity and cost of credit, and, above all, the sad-sack housing market.
The article provides a number of details about various businesses catering to the luxury (but not necessary affluent) consumer that are seeing their sales decline. Sales of economical and efficient cars are growing while SUV sales are stagnant. The average size of homes sold is decreasing after a long period of increases. Homeowners are opting for smaller living spaces when they don’t have faith in the prices. High-end restaurants are not attracting the numbers they had been just a few years ago.
The impulse to spend less and save more has always been cyclical. In the aftermath of a debt binge, Americans always rediscover the joys and benefits of frugality — only to whip out the credit cards once interest rates fall.
So all of this is to be expected. We’re all a part of the market, so it’s hard to go against the trends. But while everyone else is being frugal, companies might work harder for business. There may be value in being frugal while the rest of the economy is not as well as looking for more luxurious deals when companies are working hard to get people interested. When the cycle moves in the other direction again, some investments might pay off.
The Latte Era Grinds Down [Newsweek]
Image credit: rhosoi
Updated January 24, 2017 and originally published October 19, 2007.