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Notes from the Road to Recovery... On the Economy August 2009 The road to recovery looks very much like a highway construction zone and along the way we're finding that we have to reduce our speed and watch out for unusual hazards and the unexpected. In traveling along that road, there are a number of signs we're looking to that will provide answers about the 'new' consumer that will be emerging. What has happened with consumers' income and spending power? Having over 6 million workers out of work has been a huge issue for the economy as a whole. Economists say however, that there has not been the major reduction in wages that often accompany a serious recession. The fact that inflation has been low has helped stabilize incomes. Most consumers have about the same income they had in the past but are simply distributing it differently - saving more and spending less. This is very different than what has been seen earlier in this decade. What will people be doing with their income? The savings rate has jumped to almost 6% compared with 0.2% 5 years ago. Each time there is a recession, the savings rate jumps up significantly. In the 1970s, the rate of savings ranged from 9% to 10.5%, in the 1980s, the range was from 8.5% to 11.5% and in the early 1990s, the rate was between 6.5% and 8%. The most dramatic decline in savings took place in the last decade. For over seven years, the range has been between 0% and 3%. The question now is whether the consumer of today will behave like the consumer of the 1970s and 1980s and continue to save or will the pattern be the same as it was earlier in this decade? Many prognosticators think consumers will lean more toward consumption as opposed to saving. How much have the attitudes, preferences and behaviors of the consumer changed? Luxury and convenience have ruled consumption since the late 90's. The trends focused on pampering and the assertion that 'it is all about YOU'. Personal services grew rapidly and stores moved from providing the basics to adding all kinds of products and services to draw in the ever-demanding consumer. Grocery stores added all types of special sections. Organic, natural options grew rapidly as the assumption was that people had enough disposable income to indulge their preferences. Unique and expensive items served to help distinguish oneself from the crowd. Today there has been a major reversal. Grocery stores are reporting that all the action is in the center aisles and that store brands and private labels are dominating. The 'me first' notion has been replaced with a need to be socially responsible and economically efficient. The fact that 'green' is the new driver is as much about saving money as it is about the environment. What behaviors are reflective of the new consumer that will emerge? The answer to this question may lie within the 3 key demographic groups who are active consumers in the market today. Baby Boomers (1946 - 1965) Their life-defining memorable events include: assassinations, political unrest, landing on the moon, the Vietnam War, Woodstock, social and drug experimentation, sexual freedom, civil rights movement, environmental movement, women's movement, protests and riots, Watergate, Nixon's resignation, oil embargo, raging inflation, gasoline shortages, economic competition. The highest levels of consumption and the lowest level of savings for this segment showed up in the 1990s and 2000s. It was prime time for The Boomers to spend. While just a few years ago all the talk was about the mass exodus of baby boomers from the workforce into retirement, a recent Pew Research Center Social & Demographic Trends Project survey reveals that just over half of all working adults ages 50 to 64 say they are likely to delay their retirement. 16% say they never expect to stop working. http://tinyurl.com/pmeoc2 So indications are that Boomers will remain in the workforce and impact employment for some time to come. Generation X, aka Baby Bust Generation (1965 - 1976) Life defining memorable events: Challenger explosion, Iran-Contra, social malaise, Reaganomics, AIDS, safe sex, fall of Berlin Wall, single parent families This is the generation that grew up privileged and adopted the world of consumption as the norm. They grew up in the 'me decade' of the 1980s and came to maturity in the 1990s and 2000s. This is the generation that drove technology and the subsequent consumption patterns. Now they are focused on raising families and their offspring will be interesting to watch. Y Generation, aka Millennials or Echo Boomers (1977 - 1990's) Defining, memorable events: rise of the Internet, 9-11 terrorist attack, cultural diversity, social networking, text messaging, wars in the Middle East and now a major economic recession This is the 'on demand' generation, and the first since the 1970s to experience a marked decline in their standard of living. While they are the most widely technologically adept generation ever, they are having a harder time finding a job. Indications are that they will not be paid as much, and it looks like they will be the first in decades to have to contend with real inflation. This may end up being the generation of reduced expectations and that could change their consumption patterns for a long time. Curious to know more about how your business or organization will be impacted by these consumer groups? The Matrix Group is ready to help you map your route through the construction zone. Just give us a call. Notes from the Road to Recovery... On the Economy June 2009 Economist Dr. Chris Kuel, the keynote speaker at the 2009 Annual Marketing Research Association conference in Chicago, believes the recession bottomed out sometime in February or March 2009. According to Dr. Kuehl, as the banks led the economic crisis, it will not end without bank recovery. But the rules will change back to 'old school' ways of doing lending when it does. That is, lending to those who can demonstrate that they are financially secure enough to pay back the loans. The good news: The not so great news: - - - - - - - Dr. Kuehl emphasized that, as we move ahead toward recovery, market research is more crucial than ever for directional guidance and in separating reality from speculation. And we at The Matrix Group can provide you with the resources and information you need to map out a strategy for success. Contact us to see how we can help your business get back on the road...to recovery! Latest Polls Suggest that Frustration Over Economy is Growing The latest polls from the Wall Street Journal/NBC show that the average American remains deeply concerned about the future of the economy and that almost every other issue pales in comparison. There is no surprise here as the pattern of economic crisis in the past has always included a deep public fear until there are real signs of recovery. What is a little surprising is that the Obama administration is starting to take some heat for the economy. Up to this point the majority opinion has been that the Obama White House had inherited the problem from the Bush White House and was doing as good a job as could be expected under the circumstances. Now that opinion is starting to transition and Obama is being held to account on some issues that have not been connected to his predecessor. At this point his personal popularity remains very high and for the most part there is still support for the basic idea of his economic reform. There is still palpable anger over the bank

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