RISMEDIA, March 31, 2009-While the economy 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 (gross domestic product). Americans also say that this new, lower level of spending is structural and could last for nearly a decade after the recession ends. These findings are based on an in-depth economic survey of more than 5,000 Americans released by AlixPartners LLP, the global business-advisory firm.Â
“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-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 to raw-materials companies to financial-services organizations.”
Crawford continued, “The companies that prevail in this future economy will be those that 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 core elements such as volume projections, product mix, manufacturing and supply-chain footprint, and general and administrative costs. 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.
“Even if that 14% is inflated by the emotions of the day, which we think it probably is, our 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 â€˜new normal,'” said Crawford.
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 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.
The survey, along with additional analysis by AlixPartners revealed that the huge baby boomer 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.
Eighty-two percent of those polled said they would use upcoming government tax rebates not to stimulate the economy via immediate spending, but will instead 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 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, and 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, and survey respondents were asked to provide feedback on the current economic environment, describe current spending patterns and estimate how their saving/spending habits will change once the recession ends.
For more information, visit www.alixpartners.com.