Frugality Fatigue

During the recession these past couple of years, most shoppers have watched their holiday budgets closely. Now, many of them are suffering from what’s being called “Frugality Fatigue.”

And it looks like the Starbucks Syndrome is also on the rebound. Customers who swore off frivolous spending during the Great Recession are lining up again for their $4 caffeine fix. The company's net income nearly doubled, and revenue rose by 17 percent in the most recent quarter, compared with a year earlier. Who knew that the measurement consumer confidence would rest inside a coffee cup?

After seeing their retirement funds and home equity shrink severely, consumers tightened their belts in a shift some economists dubbed, the “New Frugality.” Fortunately for the world's largest latte purveyor and other peddlers of small luxuries, Americans could have a short memory when it comes to the economy.

Apparently affordable luxury items such as gourmet coffee, lingerie and high-end skin cream have been enjoying a comeback since the stock market began to rally in August and higher-income Americans started feeling better about their finances. Still, it's unclear whether this signals the beginning of a broader retreat from thrift. Shoppers still are making lists and, for the most part, sticking to them. The unemployment rate rose to 9.8 percent in November, holding a damper on spending in millions of households.

Alan Levenson, chief economist at T. Rowe Price, says Americans could not revert to old spending patterns even if they wanted to because banks aren't willing to lend. The personal savings rate remains high, and although consumer spending rose by an annualized 2.8 percent in the third quarter, the biggest bump since 2006, that's not enough to rev up the overall economy. Certainly there's pent-up demand, Levenson says, but shoppers are "not blowing anybody's doors off."

Just like New England weather – wait a minute. The article in today’s New York Times says that banks are lending to riskier borrowers again. Oh goody. Now suddenly those holiday television commercials about buying Lexus’s and BMW’s for gifts might make sense. One of the commercials actually says, “Who doesn’t want a really big gift this year?”

Talk about your mixed messaging. Let’s make sure our kids can keep it straight!