Recession 2008-2009: the Effect on Consumer Behavior and the Path to Recovery

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Recession 2008-2009: The Effect on Consumer Behavior and the Path to Recovery Submitted by:Tazrian Shainam Shahid (0511015) School of Business
Independent University, Bangladesh
Chittagong

Abstract

The global financial crisis now underway is expected to have major impacts on North American and European consumers due to massive job losses and reductions in spending power. It will have even more serious consequences for people all over the world. The financial crisis will undoubtedly reduce US and EU demand for at least some categories of apparel imports from the East as economic uncertainty (about job security, income, and savings) leads consumers to cut back on purchasing and brands and retailers to cut back on production in anticipation of shrinking consumer markets. It is common sense that as recession deepens and unemployment rises consumers would generally have less disposable income than before causing them to curb their spending. This will lead to a striking change in consumer purchase decisions and spending patterns and consumer behavior. With tightening pockets Consumers are likely to forego many goods and services, they are more likely to look for sharply-discounted products, which will favor some brands and retailers and not others.

This paper is an attempt to look in to the financial crisis not from the point of view of an economist but from the shoes of a consumer. It is an analysis of the effects of the financial crisis on Consumer behavior in the United States of America. This paper attempts to extend the established literature on the subject by analyzing the changes in the consumer behavior due to the current recession by analyzing the sales pattern in some key industries to reflect upon the changes in consumer purchase decisions during the recession. The paper will also reflects upon past recessions and also analyzes the different steps taken by President Barack Obama and his cabinet to bring the American economy back on track

Key words: Recession, Consumer behavior, American firms, consumers

1. 0 Introduction
Since the 1950’s the USA economy has lived through 5 recessions. However the last two recessions has been very mild for reasons that will be later explained later in this paper but the ongoing recession that has hit the US and the rest of the world together will be different than any of the past recessions.

The Federal Reserve Bank predicts “the economy will actually shrink and unemployment will rise higher as the growing toll of the worst housing, credit and financial crises since the 1930s.” The unemployment rate in US is now at 7.6 percent, the highest in more than 16 years—is predicted to keep climbing and stay elevated for quite some time. Recessions are generally accompanied by a slowdown in the growth of consumer spending, and the reason the US economy is this stagnant state center on U.S. consumers, who drive the economy. Through the past six years the U.S consumers have been the most maniacal spending machines the world has ever seen. Bearish stock market, rising interest rates, staggering personal debt, war, floods, hurricanes - nothing could slow them down. That was mainly because the value of their largest asset, housing, kept going up, and because they were confident about their jobs. As long as both their homes and their jobs seemed secured they kept buying and the wheel of America's economy kept turning. One of the major reasons why consumer spending continued to grow during the 2001-2002 recession is because consumers leveraged their homes to continue their spending growth, as well as increased their credit card debt. However, in the current cyclical slowdown, it is going to be harder to use mortgage equity withdrawals to bolster consumer spending, as home values are dropping. Employment prospects also look grim with layoffs and retrenchment being the mantra for most companies for cutting costs. With the piggy...
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