Up close with recession

Some call it the ‘great recession’ while a few term it the ‘minidepression’. Whatever the jargon, the prospect of visiting the US in the midst of a recession—undoubtedly the longest since World War II and the worst after the Great Depression of the 1930s—was indeed exciting. It was mid-July and I expected to see a country in pain. Instead, what I got to see was a country that was adapting to the crisis by even giving up what is essentially considered ‘the American way of life’. Snapshots from six diverse cities:

Grand Rapids, Michigan (July 13): Our driver, Joel Rykse (62), is a happy man. The current recession has so far spared him. But that is not the main reason for his happiness. The difficult times have forced Joe’s elder daughter to return home and live with him. Now he need not have to worry about his house when he leaves for Florida to escape Michigan’s bitter winter. Across the US, the adverse conditions are driving employed unmarried kids back to their parents’ home, thus reviving the concept of nuclear families. In the 1970s, nuclear families constituted over 40 per cent of the total family units in the US. Today, it is less than 25 per cent. “You need a crisis to get people, especially kids, to understand and accept certain values which have become unfashionable over time,” says Joe.

Washington D.C. (July 16): I bump into Frank Robinson, a retired retail executive who in many ways personifies Americans in general—past and the present. He had a dozen credit cards, a home loan that he had recapitalised (in line with the market value) and typically lived ‘pay cheque to pay cheque’. Not any more. Today, he has just three credit cards, has rescheduled his home loan and most importantly, has begun to save money. Americans, after living way beyond their means, have finally come to realise that thrift is, after all, not a bad word. The savings rate, which remained near zero for years, shot up to 6.9 per cent in May— the highest since December 1993. Between January and May, total savings amounted to a whopping $768.8 billion. They are cutting back on the use of plastic money. Total credit card debt declined from $972.7 billion by end-2008 to $928 billion in May this year. The overall consumer credit, too, has fallen over the months. The results are showing. Debt-related stress fell 12 per cent in June compared to December 2008, according to an Associated Press poll.

San Francisco (July 18): A recent trend at Silicon Valley is to start a swap website. In fact, such sites are proliferating as Americans rediscover the value of sharing. The website www.bookmooch.com, which facilitates exchange of books, saw its membership almost triple between December 2007 and August 2009. Americans are sharing everything—be it books, tools, equipment, cars, homes and even their backyard! Zip Car, the car sharing service, has reportedly seen a 70 per cent increase in membership. Another site, www.bagborrowsteal. com, which rents out luxury handbags, watches and sun glasses, saw its membership soar from 2.5 lakh to 10 lakh in the past 12 months.

Detroit (July 22): During the ride from the airport to Ford’s world headquarters in Dearborn, I start counting the number of non-American car brands that drive past me. To my surprise—in the home town of General Motors, Ford and Chrysler—three out of four cars were non-American brands and almost all were compact cars. Americans are finally beginning to abandon their love affair with big cars. They are opting for smaller and more fuel-efficient models instead. US car sales in July confirm this trend. Sale of large cars fell 24 per cent while SUV sales slid 36 per cent. But compact cars such as Ford Focus (up 44 per cent), Volkswagen Jetta (31 per cent) and Hyundai Elantra (30 per cent) sold heavily. I ask Alan Mulally, CEO, Ford Motor Company, if the trend is here to stay.”We believe that the shift to smaller and more fuel-efficient vehicles is permanent,” he responds.

Chicago (July 24): Millennium Park in downtown Chicago is unusually crowded. So is the museum and aquarium complex. I remember what Anku Nath, Director, Trade Policy Advocacy, US-India Business Council, told me in Washington. Americans are cutting back on holiday travel and instead spending time at home, taking their kids to nearby places of entertainment. They call it ‘Staycation’. Spending quality time with kids need not necessarily be costly. The scene is pretty much the same when I visit Lake Geneva in Wisconsin. Prudence has come to replace profligacy as a virtue in the American way of life.

Atlanta (July 26): It is a Sunday and I am at a mall in the suburbs. The section comprising factory outlets is swarming with people while the other side is practically empty. It soon becomes clear that a massive discount sale is on in the factory outlets, where, for instance, a Van Heusen Tshirt costing $36 (Rs 1,728) is being offered at $13 (Rs 624) and a Tommy Hilfiger shirt costing $56 (Rs 2,688) is available at $28 (Rs 1,344). People are just lapping them up. Bottom fishing has come to replace impulsive buying as Americans embrace value buying. Left with few options, retailers across the US are dropping prices to get consumers into their shops.