Tuesday, December 2, 2008

The economic crisis and the consumer

Around the planet, a vast majority of people have reduced their discretionary spending, both with regards to consumer goods, such as clothing, and for major purchases such as home appliances, a vehicle or a house. As reported in a Washington Post article, Economist Peter Morici from University of Maryland states that «What consumers are not spending on gas, they are not taking to the mall».

One could have indeed thought that the significant decrease in fuel prices could lead to a reallocation of the money saved to discretionary spending. However, let’s recall that the disproportionate increase in fuel prices has forced many consumers to cut everyday spending, food for example; it’s likely that the money they now save on fuel is first being allocated to a form of recuperation for basic expenses before being used on discretionary consumption.

In most parts of Canada and the United States, consumption is down. A Global and Mail daily Poll performed in the last week of November reveals that a majority of people plan to reduce their Christmas expenses. Although the sample was not selected scientifically, the survey nevertheless features 13 160 people. Of these, 68% plan to reduce expenses, a result that corroborates what one can observe in stores.

In the United States, «Black Friday», the day on which retailers traditionally turn from losses (red ink) to profits (black ink), has been disappointing. A Washington Post article reports that consumers only buy items on which they get an exceptional deal.

It would appear that things MAY BE different in Quebec… FOR NOW. Indeed, according to a survey unveiled on November 12, performed by Altus Géocom on behalf of the «Conseil québécois du commerce de détail» (CQCD – Association of Quebec Retailers), 64% of Quebecers say that they intend to spend as much as last year for their Holiday purchases; 7% of our citizens intend to spend even more. For my part, the GOOD news in all this is that these percentages are still lower than in 2007 when they were respectively 69% and 12%. There thus seems to be only 29% of us, 10% more than in 2007 thank God, who want to reduce their consumption for the Holiday season. I am one of those.

This denial of the crisis by many Quebecers was confirmed to me during an interview on Christiane Charette’s talk show on November 25th. I was amazed to hear callers say that the economic and financial crisis was amplified by the media to «scare people». I wondered what planet I was on. If those people are representative of Quebec's population, this may explain, at least in part, the results of CQCD’s survey.
Those reactions are rather shocking, considering what is happening elsewhere in Canada and the United States.