Frugal Families: A Sign of a Slow Economy

I keep talking about how hard times are on the business side in terms of jobs and economic growth, but it's also become tough for families to spend on essential goods. The economic slowdown has hurt household incomes through lost jobs or reduce income through inflation. The purchasing power of a household is in a very precarious place, and households have been very frugal as a result:

Buffeted by high unemployment, heavy debt loads, falling home values and high food and gas prices, these shoppers have been whipped into a permanent state of consumer caution. They buy only what they need, avoid premium labels, clip coupons and scour sales.

This has created an environment where households are trying to stretch what they have and save on what they're going to make. Furthermore, there seems to be a cyclical spending habit based on when paychecks are distributed:

Wal-Mart Stores Inc. Chief Executive Mike Duke told analysts in a recent conference call that paycheck-cycle shopping is more pronounced than ever, with shoppers stocking up shortly after getting paid, then moving to smaller product sizes toward the end of the month when they run short of money.

Companies have become more proactive in offering products that appeal to this frugal consumer:

Some are waiting longer to pass on higher costs, whether for food or cotton. Coca-Cola Co. and other companies have added new packages at small sizes and lower price tags. Some retailers are holding the line on hiring, even as they head into their busiest season of the year. Many stores are expanding their selection of cheaper private-label products and some are offering credit cards with across-the-board discounts. Layaway has made a comeback.

One of the few stores to have thrived in this time are the dollar stores:

Dollar stores sales boomed during the recession and moderated only somewhat as the economy appeared to improve. Now, renewed pressure on consumers are lifting their sales again. Dollar General Corp. raised its full-year sales guidance to between 4% and 6% from 3% to 5% when it reported second quarter earnings in late August.

It's frightening how household spending habits are shifting, but what's most frightening is what's going on with parents of newborns:

The volume of diapers sold in the U.S. slipped 1% in the four weeks ended Sept. 4 from a year earlier, extending a string of similar or steeper declines stretching back to August 2010, according to Consumer Edge Research, whose retail-sales tracking doesn't include Costco Wholesale Corp. or Wal-Mart Stores Inc. Dollar sales fell nearly 3%, indicating parents are both cutting back and trading down to cheaper private labels.

Yes, it appears that parents are cutting by on their diaper purchases. That's just nasty.

Perhaps as a result of this change in spending, we've seen an increase in diaper rash ointment:

Meantime, sales of diaper-rash ointment have increased 8% over the past year, according to market-research firm SymphonyIRI. Analysts and pediatricians say the higher sales likely reflect either less frequent changes or a shift to lower quality diapers.

I understand that diapers cost a lot of money and everyone is trying to get leaner wherever they can, but at what point is the health issue the most important thing? I think people should take the best care of themselves and their loved ones that they can so that they stay healthy and avoid burdensome medical expenses. We're moving into dangerous territory. It just speaks to how bad the economy is getting.

Part of this is on the Fed. While the Fed has insisted that inflation has not risen, oil and food prices have been high and that's been a burden on families. Additionally, we're approaching Winter, when gas prices will go up as families try to keep their houses warm. If this Winter is bad, we're going to have a lot of families in trouble. Inflation has been burdensome, and to not recognize that is ignoring a core economic measure.

In the meantime, what would help unburden these families? Lower taxes? Job growth? These families need something real to help them through these tough times. They're not getting it.