Economy forces major shift in spending

MarketWatch

CHICAGO — Wondering how consumers are coping in such a troubled economy? Look at what’s selling instead of which sales are tanking.

As consumers muddle through all that is plaguing the U.S. economy, they have battened down the hatches and sharply shifted their spending habits, turning to money-saving options that run the gamut from transportation to health as they find ways to pay for dramatic increases in gasoline and food.

What emerges is a new paradigm of consumerism that some experts believe will live long after this economic crisis is resolved.

“Suddenly consumers are focused on buying what they have to have as opposed to buying what they want to have,” said Howard Davidowitz, chairman of Davidowitz Associates, a New York-based retail consulting and investment-banking firm.

“This is a permanent change for Americans, who will face a declining standard of living over the next 20 years,” he added.

Consider this: Truck and SUV sales are losing air as quickly as a popped tire, but hybrids and fuel-efficient car sales are holding their own. Sales of scooters, which can cover twice as much ground on a gallon of gasoline as America’s favorite Toyota Camry sedan, are gaining as fast as prices at the pump.

Sales at department and specialty stores have been in the dumps for many months. But sales at drugstores and most deep-discount stores are in rally mode as more people opt for stores closer to home and those perceived as value giants.

Meanwhile, home-seamstress haven Jo-Ann Fabrics delivered surprisingly strong first-quarter earnings after a stretch of dismal results, thanks in part to strong sales of sewing notions, quilting and craft items. Same is true for Michael’s Arts and Crafts, suggesting that consumers are going back to the basics as they spend more time at home.

At the grocery store, the soaring costs for chicken, fresh strawberries and beans are leading consumers to the frozen- and canned-foods aisles where the prices are more palatable for a family of five. Even Spam is making a comeback.

“This is impacting every single American right now,” said Dan Houston, president of Principal Financial. “No one’s immune.”

Phil Rist, a principal at BIGresearch who has been appraising consumer attitudes and patterns for some time, agrees with Houston and has consumer surveys to back it up.

Even the rich are joining the cut-the-corners club, according to a bevy of reports. Take dining patterns: When BIGresearch asked if they had cut down on going out for meals this year, 36.2 percent of those with household incomes over $100,000 said they had — a 13 percentage point jump from a year earlier. A tightening up on restaurant meals from January through March of 2008 accounted for most of the increase.

The Food Marketing Institute recently reported that 83 percent of consumers are eating home-cooked meals in, of all places, their own homes at least three times per week. FMI also found that wealthier households are more apt these days to buy food to make at home than lower-income households that tend to pick up cheap burgers and fries at fast-food restaurants.

The latest update of the Principal Financial Well-Being Index found that more Americans are pinching pennies when it comes to everyday spending.

Since April, 56 percent of workers and 55 percent of retirees told Principal that they have pared spending because of the economy’s woes. That’s significantly more than workers, at 38 percent, and retirees, at 32 percent, who said the same thing only six months ago.