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American consumers have no recollection of life in the Great Depression. Not only are most simply too young to remember it, but for the last quarter century they've lived without extended economic hardship, becoming ever more acquisitive in a world of instant gratification and easy credit. No one knows how long or severe the current downturn will be.

The circumstances of this recession are unprecedented in the history of modern consumerism: For a generation that has substituted rising home equity and stock prices for personal savings, the current economic meltdown -- with the value of the Dow Jones Industrial Index plunging 40 percent from its peak and $4 trillion lost in home equity -- has been psychologically wrenching after a quarter century of unquestioned prosperity.

Factor in the loss of confidence in financial institutions and an investing world where even the very rich can be wiped out through Ponzi schemes and you have a group of shell-shocked consumers who are reconsidering long-held spending habits.

Much has been made about the everyday stuff of thrifty consumerism -- coupon clipping, fewer restaurant meals, brown-bagging it to work, staying close to home for vacations. But those thumbnail sketches of a contracting economy miss the big picture: The fears among baby boomers, who account for more than half of U.S. spending and who traditionally have grown more affluent with age.

Eric Almquist, a Bain & Co. partner, points to the number of retirement-age individuals who are becoming more conservative with money. "One of the unique things in the Western world now is that you have a huge group of pre-retirement baby boomers, a huge number of people who are asking, 'Can I live off my savings and social security for the rest of my life?'" observes Almquist. "This creates the potential to switch behaviors. They'll watch pennies more closely, be more careful with credit, avoid losses and be more risk adverse, preserve the status quo, rather than gain gains."

Already there are signs of that change. In one of the most dramatic reversals in post-World War II history, Americans -- who in recent years have had negative savings rate -- are expected to flip those patterns, with Goldman Sachs now saying the U.S. savings rate could be as high as 6 percent to 10 percent this year.
 
"This is not a normal recession. This is a tectonic, structural shift, a global realignment," says Umair Haque, director of Havas Media Lab. "The post-war industrial era was the era of production. Now we're seeing the birth of the real 21st-century economy and marketing has to adapt. We'll see a world where consumption [will] slow -- especially in developed countries where there will be a shift from consuming to saving -- and production will slow."

Gallup chief economist Dennis Jacobe concurs that "a fundamental change is taking place" in the behavior of U.S. consumers, even if it's not clear how permanent it will be. While gas prices have dropped 57 percent since peaking last July, cheaper petrol has done little to loosen consumer purse strings. And for more affluent American households, their declining confidence and spending track with a time line that started last fall with Lehman Brothers' bankruptcy filing, and worsened with the once-unimaginable sale and bailouts of troubled financial institutions that quickly followed.

"Last year as gas prices rose, lower-end consumers pulled back and those in the higher end continued to spend, using home equity and credit cards," Jacobe says. "That began to change in mid-September as everything unwound. Even for the rich it's not fashionable to be spending right now."

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