Americans Expect Their ‘New Normal’ Spending Levels to be 86% of Pre-Recession Levels, According to AlixPartners Poll
Would Translate into a 10% Drop in GDP for Nearly a Decade; Baby Boomers Would Account for 35% of Total Dollars Saved Post-Recession; Will Necessitate Businesses to Modify Long-Term Growth Expectations and Cost Structures; 82% Say They Will Save, Not Spend, Upcoming Stimulus Money
NEW YORK--(BUSINESS WIRE)--While American industry is struggling to get through what could become the worst recession since the Great Depression, Americans say that even after the recession ends, their spending will return to just 86% of pre-recession levels, which equates to an approximate 10% drop, or more than $1 trillion annually, in GDP. They also say this new, lower level of spending is structural and could last for nearly a decade after the recession ends. The findings are based on an in-depth economic survey of more than 5,000 Americans released today by AlixPartners LLP, the global business-advisory firm.
“The future size and shape of virtually every business in America as well as those businesses that export goods to America rests upon a simple equation: how much Americans think they need to save versus how much they think they can afford to spend”
“The future size and shape of virtually every business in America as well as those businesses that export goods to America rests upon a simple equation: how much Americans think they need to save versus how much they think they can afford to spend,” said AlixPartners chief executive officer Fred Crawford, “It would appear that this recession has dramatically altered the mindset of Americans vis-à-vis that equation—perhaps baby-boomers most of all. And given that spending by Americans drives approximately 70% of our economy, this massive reset will result in major changes in the economic landscape of almost every sector of business, from consumer-facing companies to suppliers of all kinds to raw-materials companies to financial-services organizations.”
Crawford continued, “The companies that prevail in this future economy will be those that today take proactive action to prepare, action even more dramatic than many have contemplated thus far. These survey results – and AlixPartners’ institutional experience – strongly point to the need for companies to urgently examine their underlying business assumptions and strategies and to significantly retool such core elements as volume projections, product mix, manufacturing and supply-chain footprint, and general and administrative costs. And these business-model changes must be accompanied by aggressive cash management and more conservative capital structures.”
On the savings front, the survey revealed that once the recession ends, Americans plan to save an astounding 14% of their total earnings, with the replenishment of their 401(k) and other retirement savings leading the way among their biggest long-term concerns. According to the U.S. Bureau of Economic Analysis, Americans saved 1.6% of their total earnings in 2008 and just 1.4% on average for the decade prior.
Said Crawford: “Even if that 14% is inflated by the emotions of the day, which we think it probably is, our long history at AlixPartners of studying the behavior of markets suggests that Americans’ attitude towards risk, savings and spending truly has been dramatically reset, to the point that the future may look more like the early 1980s than the mid-2000s. This has dramatic ramifications for a broad range of government and social policy, as well as for business. It is very important that companies understand and plan for what could be this ‘new normal.’”
In addition, survey participants estimated that their retirement savings have dropped an average of 25%, while almost a quarter of those polled (22%) said they now plan to retire later than previously expected. Among that number, the expected retirement age jumped up 3.6 years compared with their earlier expectations: to over age 65, versus about age 61-1/2 before. When asked why they now expected to retire later, 30% cited loss of savings or retirement. Meantime, the survey plus additional analysis by AlixPartners revealed that the huge Baby Boom generation, once thought to be moving into the years in which they would be spending their retirement savings, may instead be accounting for more than a third (35%) of total dollars saved by Americans post-recession.
“The Baby Boomers’ golden spending years look like they now will be their golden catch-up years,” said Crawford.
Tellingly, 82% of those polled said they would use upcoming government tax rebates not to stimulate the economy via immediate spending, but instead will save that money or use it to pay down personal debt. And for those planning to save the stimulus money, they reported they would be keeping that money in savings for three years on average.
In terms of which areas of spending will be cut back in the future, Americans made it clear they feel today’s “back-to-basics” mentality will continue for years to come. Among the sectors most cited were dining out, vacations, clothing, autos, home purchases, home improvement and travel. Meantime, 77% of those surveyed said that even post recession they plan to wait for sales, 66% said they plan to buy less in general and 58% said they plan to buy less-expensive things.
Those surveyed were also not sanguine about the futures of the companies for which they work. Most (69%) said they’re concerned about their employer’s very survival, and less than half (46%) said they’re confident their company is taking adequate steps to survive this recession.
About the Survey
The AlixPartners Long-Range Economic Outlook survey was conducted February 19 to March 3, 2009, with 5,031 people in the U.S. across ten key demographics: gender, age, location (urban, suburban, rural), region (Northeast, Midwest, South and West), education, marital status, number of children, employment status, income level and ethnicity. Participants were asked more than 50 questions. Survey respondents were asked to 1.) provide feedback on current economic environment, 2.) describe current spending patterns and 3.) estimate how their saving/spending habits will change once the recession ends. Highlights of the survey can be found at www.alixpartners.com.
AlixPartners is a global business advisory firm offering comprehensive services to improve corporate performance, execute corporate turnarounds, and provide litigation consulting and forensic accounting services. It was the recipient of a record four awards from the Turnaround Management Association in 2008. The firm has more than 800 professionals in 13 offices across North America, Europe, and Asia, and is on the Web at www.alixpartners.com.