The art of successful investing using consumer trends involves asking the right questions. Asking â€œWhen is this recession going to end?â€? is not helpful, because there are no clear answers that can provide useful information about long-term changes in consumer behavior.
But suppose we ask: â€œWhat combination of shifting consumer psychology and demographic change is occurring that could have a big impact on what consumers will buy and how they will shop during the rest of this decade?â€? The response is important because of what everyone involved in marketing knows: it's the interaction between demographics and psychographics that drives consumer behavior.
The unprecedented terrorist attacks last September, and the uncertainty of when more attacks might occur, have had a profound impact on consumer psychology. Building on trends that predate the attacks, Americans may become increasingly risk-averse and choose to stay home more than ever before. If consumers do retreat to the perceived safety of their castles, they are likely to pay more attention to their surroundings, all to the benefit of providers of home furnishings and home-improvement products as well as other home-related industries.
Considering the huge losses in jobs and investments over the past two years, it would be surprising if Americans were not already risk-averse. People always tend to be more cautious during an economic slump. Such caution, coupled with the unsettling events of last September, could mean that investors may become less speculative and more conservative, and that consumers may be more likely to stick with products, brands and locales that they know and trust.
The demographic side of this story is the growing tendency of Americans to stay at one address. The Census Bureau has been tracking trends in residential mobility for many years and recently reported that Americans are moving from one residence to another less often. During the 1950s and 1960s, the bureau found that about 1 in 5 American adults moved. But that number dropped to less than 1 in 6 between 1999 and 2000, when only 15.4 percent of U.S. residents age 20 or older packed up and moved.
By the end of this decade, even if each age group's mobility rates remain the same, we would have the lowest rate of geographical mobility â€” 14.9 percent for people age 20 or older â€” since the bureau started to measure this statistic half a century ago. A half a percentage point drop in a decade doesn't sound like much, but it means that at least a million fewer people will change their residence each year.
If the events of last September create a long-term desire for greater stability and more permanent ties to a community, they may also diminish even further the rate at which people move â€” to a rate lower than the anticipated 14.9 percent. The age breakdown of who is most likely to move, however, will probably remain unchanged.
In general, young people move most frequently, in search of work, mates or both. But after age 45, people tend to stay in one place, and after retirement, they are very unlikely to move except for seasonal changes. Between 1999 and 2000, the Census Bureau reported that about one-third of Americans ages 20 to 29 changed their residence, but only about one-fifth of people in their 30s moved. And after age 45, less than 1 in 10 people move in a year's time. This is important, because by the end of this decade, the largest 10-year age cohort in the U.S. will be people age 45 to 54.
Since the oldest Baby Boomer is now about 56 years old, the highest growth rate during this decade will occur in the 55 to 64 age cohort, where only 7 percent change their address annually. Not the lowest rate, but pretty close. The lowest mobility is among people 65 and older, where less than 1 in 20 are likely to change their residence from year to year.
Americans' choice to stay in one place is likely to heavily influence their behavior as consumers. The desire for safety and people's aversion to being away from home may increase time spent on the Internet. People may not only use their computers to work from home, but they will probably use them to shop on the Web more often as well.
Spending more time at home may also mean that homeowners will pay closer attention to the unattractive curtains or the somewhat worn furniture that doesn't match anyway. Encouraged by low interest rates, consumers may be more inclined to embark on major home renovations, such as building an addition, a greenhouse or a sunroom. Homebound consumers are also more likely to attend to their yards and gardens, to the benefit of landscaping companies and plant suppliers.
Which group is most likely to spend money on home improvements in the coming years? Homeowners age 45 to 54 already spend more on goods and services for their dwellings than any other age group, and this trend is likely to continue. About 28 percent of a homeowner's after-tax income is spent on purchases associated with owning a home, such as appliances and home furnishings, according to the Bureau of Labor Statistics. With the added incentive of knowing that they will be spending even more time at home, this age group may devote a greater percentage of its income to home-related expenses. Every 1 percent increase in such expenses will add over $2 billion in consumer expenditures and a lot to the bottom line of companies that make and sell products for American homes.
The jolting events of last September have shown that for most Americans, home is not only where the heart is, it's also where they are most willing to open their wallets to improve their surroundings.
NO FORWARDING ADDRESS
There's a growing tendency for Americans to stay at one address. The lowest mobility rate is among people 65 and older, where less than 1 in 20 are likely to change their residence from year to year.
|AGE GROUP||# MOVERS '99-'00||% MOVED '99-'00||# MOVED '09-'10*|
|20-29||12.40 mil||33.8%||14.00 mil|
|30-34||4.30 mil||22.0%||4.17 mil|
|35-44||6.63 mil||14.8%||5.82 mil|
|45-54||3.42 mil||9.3%||4.05 mil|
|55-64||1.64 mil||7.0%||2.42 mil|
|65 & older||1.43 mil||4.4%||1.60 mil|
|Total age 20+||29.82 mil||15.4%||32.06 mil|
|*Projected by Peter Francese, assuming no drop in mobility rates by age.||Source: Census Bureau|
BREAKING THE BANK
American homeowners spent 28 percent of their after-tax income in 1999 on home-related expenses, a 19 percent increase over 1994.
|HOMEOWNER EXPENSES||% OF AFTER-TAX INCOME,'99||% CHANGE '94-'99|
|All housing expenses||28%||+19%|
|Utilities & public services||6%||+8%|
|Maintenance & repairs, etc.||3%||+27%|
|Household services and supplies||3%||+31%|
|Increased spending on utilities and home furnishings did not even keep up with inflation. But increased spending on mortgage interest and services outpaced even income growth.|
|Source: Bureau of Labor Statistics|