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The Basics

The end of the Shopaholic Nation?

Inflation, job losses and higher gas and food prices are among the pressures forcing consumers to tighten their belts. Some experts predict a sea change for the American way of life.

By U.S. News & World Report

When it comes to longevity, few royals can top America's King Consumer.

For more than four decades, our shopaholic nation has shown an insatiable desire to spend until our credit cards melt. And throughout this era, consumer spending has, well, consumed a greater and greater share of our total economy.

Only twice since 1965, despite half a dozen recessions, have Americans spent less in a year than the previous one. Indeed, it often seems that we have defined ourselves by our ability to buy supersized everything, from McMansions to tricked-out SUVs to 60-inch flat-screen televisions -- all enabled by decades of cheap credit.

On the surface, it may seem that there's nothing wrong with all that conspicuous consumption, especially for the biggest, most productive economy on the planet. After all, our undying love of stuff has helped fuel a global economic boom.

Yet America now finds itself at a once-or-twice-a-century economic tipping point. A sharp slowdown, fluctuating gas prices that have reached record highs, massive consumer debt levels, a plunging real-estate market and the growing green movement all seem to be conspiring to dethrone King Consumer and transform the economy and the American way of life for years to come.

"The process of bringing our wants and our needs into realignment," says Merrill Lynch economist David Rosenberg, "is going to involve years of savings and frugality."

Or, to put it more simply, "there is an anti-bling thing going on," says Marian Salzman, the chief marketing officer of Porter Novelli, a public-relations company.

The party's over

Many consumers, of course, don't have much choice but to scale back. Total credit card debt increased by more than 50% from 2000 to 2008. The average American with a credit file was responsible for more tha $16,600 in debt last year, excluding mortgages, according to Experian, and the personal savings rate has hovered close to zero for the past several years. High gas and food prices are causing real incomes to fall.

Even worse, once the credit crisis on Wall Street has passed, rising inflation will probably cause the Federal Reserve to start jacking up interest rates, tightening credit even further.

"We're shedding jobs, it's much harder to borrow, and what used to be capital gains are now capital losses," says Scott Hoyt, the senior director of consumer economics at Moody's Economy.com. "There's no source of funding for spending."

It was our appetite for housing that served as the catalyst for the multidecade consumer boom. Consider this: Consumer spending has risen to just more than 70% of the U.S. economy from a bit more than 60% in 1965. The pace really picked up in the 1970s, when the first baby boomers started buying and furnishing their own homes. But now, Rosenberg says, the median boomer is in his early 50s and looking to unload his fleet of leased SUVs.

To some degree, then, demographics are destiny. Longer term, an aging population will need to spend less and save more for retirement. As that process plays out, consumer spending may become less important in the big economic picture. Moody's Economy.com forecasts that the combination of demographic and financial factors will cause just such a seismic economic shift.

Reversing a four-decade ascent, consumer spending could actually start falling as a percentage of U.S. gross domestic product, slipping to 68% over the next seven years.

Are we shopped out?

This new frugality might actually be OK with many of us. Consumers were "so glutted on everything that they had acquired and all the time that was robbed from them . . . that they almost saw this (downturn) as a great opportunity to stop," says Faith Popcorn, the chief executive of her eponymous consultancy. In a survey conducted during the current downturn, she found that 90% of respondents said they were considering options for "the simpler life," and 84% said they were inclined to buy "less stuff."

Another survey indicated that people rank being in control of their finances and living a green lifestyle higher as signs of success than having money or a luxury car, and view having a paid-off mortgage as more of a status symbol than having a beautiful home.

"We have to convince ourselves that the lifestyle we can afford right now is a desirable one," says Holly Heline Jarrell, a global director at the communications firm Manning Selvage & Lee, which sponsored the survey.

Examples of the mind-set shift abound. Large-vehicle sales declined 5.5% during the first half of 2008, while compact-car sales rose 33%, according to J.D. Power & Associates. Piaggio, the company that makes Vespas, reported in June that scooter sales were up 146% over a year earlier. Even daily lattes have been cut; in July, Starbucks announced that it was closing 600 stores in response to reduced consumer traffic. NPD Group has found that the number of meals made at home has been steadily rising since 2001.

"We're coming back to the home," says Harry Balzer, the vice president of the firm.

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For some people, the downscaling has more to do with a changing definition of cool than with budgeting. The blockbuster family movie "Wall-E" depicts a future world where spending and waste have spiraled so out of control that the Earth becomes a giant landfill. Magazines play up how celebrity moms such as Victoria Beckham, aka Posh Spice, and Heidi Klum shop at Target for their kids. A simplification industry has spawned an annual Buy Nothing Day, books and blogs about not purchasing anything for a year, and the magazine Real Simple.

Shaping Generation Y

Consumers in their 20s may be most affected by the shift to simplicity. In focus group research for her upcoming book on Generation Y, consumer psychologist Kit Yarrow has found growing interest in secondhand stores. Young shoppers tell her that it's a "way to get new stuff without creating stuff," she says.

And because consumers often learn their lifetime shopping habits during their developmental years, Mandy Putnam, a vice president at TNS Retail Forward, a market research company, says members of Generation Y may be permanently shaped by today's lessons in austerity, much as their great-grandparents were by the Great Depression.

There's also an environmental component, says personal-finance guru David Bach. "I just sat at the kitchen table with my 5-year-old son talking about 'reduce, reuse, recycle' -- I couldn't have told you that at 5," Bach says. He recently wrote "Go Green, Live Rich," which focuses on how helping the Earth can coincide with smart financial choices, such as avoiding bottled water and starting a vegetable garden.

Continued: 'It's about uncluttering'

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