Consumer spending altered for long-term - Rabobank

Consumers have changed their spending habits in the recession and are unlikely to revert once the economy recovers, according to Rabobank.

A podcast by the financial services company showed that, while consumer confidence is at its highest level since November 2008, it doesn't mean consumers are spending more.

"An economic recovery would help loosen up consumer purse strings, and improve some of the consumer confidence levels," said Rabobank's food & agribusiness research and advisory executive director Stephen Rannekleiv. "But many of the pre-recession spending trends were somewhat unsustainable. I think consumers have changed."

In the podcast, Rannekleiv discusses how the economy has altered buying habits by creating more "price sensitive" consumers, who are looking for less expensive alternatives, reducing spending, and increasingly using coupons.

"This increased price sensitivity of consumers comes on the heels of an unprecedented trend of trading up. Where you saw consumers willing to spend more for small luxuries and premium products," said Rannekleiv.

As an example, for retail sales of wine between 2002 and 2008, the average growth of wine priced at more than $15 a bottle, was 15 percent. However, in the same time period, wine priced under $3 a bottle saw negative growth. In April 2009, wines under $3 experienced more than 8 percent growth, while growth for wine more than $15 a bottle, slowed to slightly less than 2 percent.

"The problem comes in the investments that were made to take advantage of these trading up trends," said Rannekleiv.

In addition to higher unemployment rates, Rabobank believes much of the change can be attributed to the loss of wealth US households have experienced from the declining stock market and housing values.

"Moving forward, consumers are starting to replace some of that lost wealth by increasing their savings, and some of this increase in savings is often cited in one of the causes in the dip in consumer spending," said Rannekleiv.

He added: "I think this increase in savings rate is something we can expect longer term, and wouldn't expect it to drop dramatically any time soon."