The Commitment-Phobic U.S. Consumer

A growing fear is stalking the post-recession U.S. -- fear of commitment. Americans are balking at all sorts of long-term entanglements, whether financial, romantic or even parental.

An obvious example is the scarcity of homebuyers and a related rise in renters. Americans are also leasing, rather than buying, cars at record rates. Increasingly they’re refusing to sign long-term contracts for health clubs, mobile phones and prepaid funerals. Not all of this commitment-phobia is directly attributable to a weak economy. By waiting longer to get married, Americans are continuing a decades-old trend. Yet there’s little doubt that the recession and housing crisis have shocked many into a new cautiousness when they’re asked to sign on the dotted line.

Younger adults are especially averse to locking in. “People who are young are less certain of their futures and how they’re going to unfold,” says R. Kelly Raley, sociology professor at the University of Texas at Austin. “That makes them less willing to make long-term commitments.”

Economic Angst

In the last five years, the U.S. homeownership rate dipped from 69 percent to 66.3 percent, according to the Census Bureau. Foreclosures and a scarcity of credit are helping to drive the decline, but economic uncertainty is also a factor, says Mark Stapp, professor of real estate practice at Arizona State University. “Some people find renting in uncertain times to be much more palatable,” he says. To follow a good job, it’s much easier to break a lease than to sell a home.

Back when housing was strong, so too was Americans’ faith in their future. “It’s very easy to make long-term commitments when you know you have hundreds of thousands of dollars in your home,” says J.J. Montanaro, financial planner at USAA Investment Management. “It’s a natural fallback.”

Without that security, it’s much harder to tempt shoppers into big, spur-of-the-moment purchases. Timeshare packages, for example, are a classic “impulse purchase,” often sold to vacationers who originally had no intention of buying a vacation spot, says Shep Altshuler, publisher of Timesharing Today. According to an Ernst & Young analysis, the timeshare industry, in which owners pay an average of $19,308 up front and $731 each year in maintenance for the right to vacation at a resort, saw sales drop 41 percent from 2007 to 2009.

Rented Wheels

Even when they lack a place to call their own, Americans have historically taken pride in owning a set of wheels. According to Edmunds.com, 22 percent of Americans’ car transactions last year were leases, the highest in at least a decade. Because of low interest rates and higher resale values, leasing is a better deal than usual, says Philip Reed, senior consumer advice editor at Edmunds.com. Manufacturers are also offering incentives that appeal to younger and low-income customers, including lease terms as short as two years and compact cars that can be leased for as little as $199 a month.

Of course, you have to be shopping to get those deals. Consumers are also sticking with older cars longer, as well as furniture and other household items. According to the latest inflation-adjusted data from the Bureau of Economic Analysis, total third-quarter 2011 consumer spending on both motor vehicles and furnishings remains below 2007 peaks.

Such consumer reluctance is changing industries. Health and fitness clubs have been known to press customers into 36-month contracts. Market research firm IBISWorld says a growing number of gyms are attracting customers by offering flexible month-to-month memberships.

Wireless carrier MetroPCS also attributes much of its success -- 1 million net subscribers in the first nine months of 2011 -- to its “no contract” offerings. “It’s really where the growth is,” says MetroPCS President and Chief Operating Officer Thomas C. Keys. The “normal human reaction to the economy,” he says, is “I need less strings attached.”

Postponed Parenthood

That fear of attachment is resulting in fewer babies. According to National Vital Statistics System data released in November, the U.S. birthrate, measuring births per 1,000 people, dropped from 14.3 in 2007 to 13 in 2010, after remaining steady for most of the decade. That translates to about 316,000 fewer babies born each year, out of 4 million births.

With more than half of all pregnancies planned, the obvious cause of this drop in fertility is the economy, says Duke University sociology professor S. Philip Morgan. “The reasons are concern for people’s jobs and welfare.” A study by Morgan finds the number of births fell faster in so-called Republican “red states” than in Democratic “blue states,” based on the results of the 2008 presidential election. “Basically, people in blue states were more confident that the recession would be handled reasonably, so they weren’t so frightened,” he says. By contrast, “people in red states were scared as hell.”

Is there a benefit to all this skittishness? One notable gain is that Americans are slowly paying off debts. On Jan. 9, the Federal Reserve said total consumer credit in November was $2.48 trillion, down 3.3 percent from 2008.

The less debt, the better, but the economy would undoubtedly benefit from more carefree consumers. “The ability and willingness of households to spend” is an important element in the economic recovery, Fed Chairman Ben S. Bernanke told Congress on Feb. 2. Jobs data bode well, with 477,000 private sector jobs created in December and January.

Yet Keith Hembre, chief economist at Nuveen Asset Management, worries about what else weighs on consumers’ minds: stagnant wages, inflation in fuel and food, and the threat of higher taxes and lower government benefits. “There is an awful lot of pessimism,” Hembre says.

To contact the reporter on this story: Ben Steverman at bsteverman@bloomberg.net

To contact the editor responsible for this story: Suzanne Woolley at swoolley2@bloomberg.net

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