- Home
- Tech Industries
- Topics
- Reporters
- Subscribe
Consumer Confidence Is Weak But Americans Will Splurge on "Little Luxuries," Says Gary Shilling
Posted Aug 13, 2010 10:24am EDT by Keegan Bales in Investing, RecessionWhile the economy remains weak and consumers are cutting their spending, strategist Gary Shilling says that Americans still want to experience luxury. While they may not feel financially secure enough to purchase a new car or appliance, consumers are willing to splurge for a new iPad or an expensive bottle of liquor. According to Shilling, the market for what he calls “small luxuries” is responsible for the soaring trade deficit.
Consumers Want Designer Labels
When he sat down with Tech Ticker, Shilling, president of A. Gary Shilling and Co., told Aaron and Henry that it is human nature to seek high quality possessions. People buy the best products that they can afford. With the recession dragging on and unemployment stubbornly high, many Americans do not have the cash for big ticket purchases. But while consumers may have lower confidence, they still crave status.
Brands Offer Cheaper Versions of More Expensive Products
Shilling says that brands are responding by offering downscale versions of more expensive products. For example, both Mercedes Benz and BMW now make smaller cars with more modest price tags. While these models are not as costly to own, they still carry the elite and exclusive image of their manufacturer. Shilling advises that investors be aware of this phenomenon because, in this environment, it can sway the fate of a company.
"People ought to evaluate what's going on in terms of, if I'm interested in a company, do they produce the sort of thing, are they responding to the market, are they really in effect redesigning products so that people can afford them and yet they still have that prestige image," Shilling says.
Dangers of Downscaling
Redesigning products to be more affordable can backfire, according to Shilling. If a brand starts selling items at too low a price point, it can damage the label’s allure. He uses Packard Motors, which dropped its prices during the Great Depression, as an example of a company diluting its brand and never fully recovered.
Impact on the Economy
In terms of how this impacts the economy, Shilling says that many of these "small luxuries," such as electronics, are manufactured overseas, boosting the import rate. At the same time, the growth rate is slow, the new homebuyer tax credit has expired and consumers are saving more of their income. Consequently, he predicts that the gap between imports and exports will continue into the near future.
"People are definitely retrenching and we could have a second dip in the recession or really probably a separate recession. I think the odds are probably a little north of 50 percent on that one, but low growth at best."
75 comments
-
0 users liked this comment Please sign in to rate this comment up. Please sign in to rate this comment down. 0 users disliked this commentEagle Mon Aug 16, 2010 04:57 pm EDT Report Abuse -
0 users liked this comment Please sign in to rate this comment up. Please sign in to rate this comment down. 0 users disliked this commentA Yahoo! User Report Abuse
My Luxurie ?
Perfume's new single Voice !
Support Perfume
Don't download ! -
0 users liked this comment Please sign in to rate this comment up. Please sign in to rate this comment down. 0 users disliked this commentA Yahoo! User Report Abuse
My Luxurie ?
Perfume's new single Voice !
Support Perfume
Don't download ! -
0 users liked this comment Please sign in to rate this comment up. Please sign in to rate this comment down. 0 users disliked this commentA Yahoo! User Report Abuse
My Luxurie ?
Perfume's new single Voice !
Support Perfume
Don't download ! - 0 users liked this comment Please sign in to rate this comment up. Please sign in to rate this comment down. 0 users disliked this comment. Report Abuse
Attacking the military-industrial complex is a great catharsis that usually proves to be ill conceived. In times of stress, that's the first scapegoat. This interesting concept where you assert the products are not produced in America and how the govt escapes part of the blame baffles me. Read some of the trade agreements and decide for yourself if the govt should be held responsible. Read the legislation that actually encouraged guest workers to come to the USA to take domestic jobs. The military is 100% volunteer. You imply the military is purposedly large and it could be related to the terrible economy.... my thoughts
- 1 users liked this comment Please sign in to rate this comment up. Please sign in to rate this comment down. 0 users disliked this commentfrankmargel.com Report Abuse
Good Morning Gang! The market is going to sell off now as the nuts prepare for a double dip depression. Smile if you have a low wage job and no benefits, why? You are better suited to getting kicked in the teeth than these fake white collar types who boo hoo the loss of their lush lifestyle and cushy job. Most of those folks will eventually turn on Obama and vote for a real leader next time around. Until then, beans and rice, America. Let's rock n roll! mmm mmm mmm! Deflation, stagflation, inflation, reflation, "It's still Rock n Roll to me!" Volunteer, some one will feed ya! Squirrels live in trees, try it! LMFAO!
-
0 users liked this comment Please sign in to rate this comment up. Please sign in to rate this comment down. 0 users disliked this commentA Yahoo! User Report Abuse
Yes we're all just going to iPhone and 3-series our way to the next recovery right? Maybe the problem with America is we don't buy anything that's made here, and don't think it matters until it starts affecting our own jobs. Then we scream that the government didn't do enough for us. America is no longer a country, it's a subset of the global consumer demographic with a large military attached. China does a better job of keeping money in the family.
-
4 users liked this comment Please sign in to rate this comment up. Please sign in to rate this comment down. 2 users disliked this commentA Yahoo! User Report Abuse
If you all would just relax and go on a vacation.. oh, say to Maine, or Spain, or 'pretend you are concerned about the gulf and go to Florida...(can't he get further away from LA?... what a POS)... just go to Martha Vineyards for 10 days.. come on, you bashers you.. get off his back.. hey, where are the bathing suit pics of the manchild for the 'tingle up the leg' crowd??? ... Give support for Mosque on twin towers site and sues state of Arizona, hmmm, anyone surprised?....hoax and change is workin
- 4 users liked this comment Please sign in to rate this comment up. Please sign in to rate this comment down. 3 users disliked this commentUSA4Ever Report Abuse
Hey Gary, We are lucky to have enough money to buy groceries let designer CRAP, thank to the DemoRATS and O-bow-well'e econmy and igh taxes!!!
- 2 users liked this comment Please sign in to rate this comment up. Please sign in to rate this comment down. 0 users disliked this comment. Report Abuse
Bob Kohler of Suffolk County, New York: Worked as an IT project manager before the recession... Focused on writing motivational works about the power of positive thinking and the need to accept hardship. Kohler did not realize his unemployment insurance would run out shortly after Christmas. It just stopped.His wife and he had not adequately prepared. “The American dream?” he says, softly. “It’s decimated.”... 1.) How could you not know? 2.) PM in IT can't plan? 3.) Looks to govt to care for him 4.) That's why American Dream is dead
Recent Posts
Most Recommended
Quotes and other information supplied by independent providers identified on the Yahoo! Finance partner page. Quotes are updated automatically, but will be turned off after 25 minutes of inactivity. Quotes are delayed at least 15 minutes for NASDAQ, NYSE and Amex. See also delay times for other exchanges. Real-Time continuous streaming quotes are available through our premium service. You may turn streaming quotes on or off. Fundamental company data provided by Capital IQ. Financials data provided by Edgar Online. Historical chart data and daily updates provided by Commodity Systems, Inc. (CSI). International historical chart data, daily updates, fund summary, fund performance, dividend data and Morningstar Index data provided by Morningstar, Inc. Analyst estimates data provided by Thomson Financial Network. All data provided by Thomson Financial Network is based solely upon research information provided by third party analysts. Yahoo! has not reviewed, and in no way endorses the validity of such data. Yahoo! and ThomsonFN shall not be liable for any actions taken in reliance thereon. All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.