6 Ways the Recession Has Changed Consumer Spending in Australia & the USA

Sometimes, it’s difficult to get a sense of what people in other countries have to deal with. Luckily, the guest post today addresses this, even in a very small scale.

A massive stimulus plan, reduced consumer spending, increased unemployment – we aren’t just talking about the United States here. The effects of the American financial crisis have stretched worldwide, and Australia has not been left unscathed. The current recession’s sticky tentacles have managed to drag down with them many economies that before 2008 were functioning and growing quite well. Unfortunately, Australia is one of those countries and here’s several first hand effects that I noticed.

1. Consumers Buying Less
   With credit restricted in both the US and Australia, consumers are tightening their belts when it comes to purchases. A ‘Cash for Clunkers’ vehicle trade-in program in America paired with a nearly trillion dollar stimulus package, tends to overshadow a 26.5 billion (USD) Australian package, but for a country like Australia that is used to running a budget surplus and with a proportionately smaller economy, such numbers come as a shock. With no promises being made on either side that these plans will fix the economy and unemployment still rising in both countries, expectations are being tempered, leaving consumers wary as to whether they should dip their toes back into the spending waters. It is worth noting however, that consumer confidence is rising in Australia and has recently hit a two-year high.

2. Buying Better & Smarter
   One of the benefits to the consumers of both nations during the financial crisis fallout has been a reawakening to the art of the deal. For many consumers used to paying sticker prices for vehicles, appliances, and electronics, the sudden abundance of great deals and lower prices have provided those who have money to spend the chance to buy the best products at a fraction of what they were offered at just a year or two ago. Lower housing prices, retail discounts, and government assistance programs such as the Cash for Clunkers program and first time homebuyer’s tax credit in the US or the Australian stimulus package’s cash to low income families, have somewhat helped to ease the strain on consumers, but have far from mitigated the consequences to retailers and manufacturers during the recession.

3. Eating Out Less
   Unfortunately, there is a downside to certain instances of consumers spending less on products, more so than just the effects on economic growth. While the differences in the foreclosure status between the two countries are significant, it doesn’t mean Australia hasn’t been affected by the ripples of the credit crisis. The Australian banking system hasn’t been affected as adversely as in the US, however; rather than shutting off available credit to consumers as has largely been the case in the US, Australian banks have upped the ante when it comes to borrowing, tending to continue to offer credit to consumers and businesses but at higher interest rates. The effects on both sides of the Pacific result in tighter credit, which in turn affects consumer spending all the way down to the food they eat.

   Credit constraints, paired with rising job loss in both countries and fear regarding the future, leaves many families with less to spend on food products and often looking for cheaper alternatives at the grocery store. Lower prices typically does not equate to healthier food either. Often, sale or discounted foods offer lower nutritional values and benefits when compared to more costly food products, and therefore promote less healthy eating during times of economic distress.

4. Increased Saving: A Positive Aspect of Recession
   On the positive side of the recession’s effects upon consumers is increased saving. People around the world, have learned the valuable lesson of preparing for the future and unforeseen events through increased personal savings. Nowhere has this lesson hit home harder than in the United States where personal savings levels dipped into the negative just several years ago. The recession has awakened consumers to the benefits of saving and has pushed personal savings levels back into the black, moving to nearly seven percent in the US this year. Conversely, as saving levels increase, spending decreases, which means consumers are tightening their belts when it comes to larger purchases.

   It’s yet to be seen as how the recession will affect Australian personal savings rates as statistics aren’t readily available, but anecdotal evidence points to increased savings down under too. While savings rates have steadily been declining since the mid-80s, with higher interest rates available and consumer spending down, it may be assumed that Australian personal savings rates will increase slightly, at least temporarily, as people hunker down for the short term.

5. Lower Consumer Spending Hits Small Businesses Hard
   The changes in consumer spending mean a shift in the way many businesses interact with and meet consumer needs. While nearly all businesses have been adversely affected by the recession, small businesses in particular have taken a hard hit due to their lack of recourses and available cash flow to ride out a prolonged economic downturn. Again, rising interest rates in Australia and lack of available credit in the US has made it difficult for businesses to tap sources of credit for continued cash flow. This negative impact on small businesses leaves their owners and employees less willing to spend, and thus results in a snowball effect that minimizes consumer spending.

6. Even Optimists are Wary
   While stock markets around the world are on the rise, and there is now a glimmer of hope for a worldwide recovery, many consumers are still hesitant to resume there previous spending levels. While many in the US and Australia are hopeful that within the next year more signs of a recovery will become evident, few expect things to return to where they were just years ago anytime soon. It certainly appears that Australian consumers will most likely be feeling the effects of a recovery sooner than those in America. However, even the most optimistic consumer on either continent must have inklings of the acute possibility that such a crisis could occur again, whether due to looming mortgage resets in the US, continued restricted and pricey credit, or a still unforeseen event that could act to alter the way in which we spend our money.

About The Author

Kris writes about personal finance for an Australian credit card comparison website offering a range of cash back credit cards that help everyone save money. You can read more of his writing on The Credit Letter.

Tagged as: Economy, Recession

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