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Thursday, July 18, 2013

The Media Legacy of the Great Recession

Today, the Dow Jones Industrial Average closed at an all time high of 15,548. This is an enormous gain since the low point of the Great Recession in spring 2009 when it bottomed out at 6,500. While we all know that the stock market can turn quickly in either direction, we are now for the first time in several years beginning to hear media pundits talk again about a possible return of the “wealth effect.” In brief, the theory behind the wealth effect is that when people feel wealthier as a result of unrealized profits in either equity markets or residential real estate they spend more as their net worth has become a psychological cushion.

All of us want prosperity but increasingly both gains in income and net worth are going to those at the top end of the ladder. Nearly all of the equity gains have been realized by the top 5% of Americans and the top 1% may have scooped up as much as half of the paper profits since spring, 2009. Yet, I hasten to add, in a free market, there is nothing wrong or illegal about that. We live in a meritocracy and those who produce more get a disproportionate share of the pie.

If you talk to people at the top of the heap (top 5%), things are pretty much back to normal and some of us feel better than ever about our finances. Recently released data indicates that the average 401k balance is just under $90,000. That is great if you are 30-35 years old but dangerously low if you are in your 50’s. What few mention is that the majority of workers in the US have no defined pension or no 401k or IRA or, if they do, the balance is very low. So, the fact that the Dow hit a new high today means nothing to most people.  If you look at recessions of the past 100 years, this one is truly different. In past downturns, everyone suffered. And, when things bounced back, the overwhelming majority returned to prosperity very quickly. Today, unemployment remains stubbornly high and “under-employment” approaches record levels. Economists and those who follow business cycles closely will tell you that the Great Recession ended in June, 2009, approximately 18 months after it began. Over the last four years, I would say that the majority of Americans do not feel much better off or more secure than they did when the recession was hitting us full force.

This may sound a bit flowery but it appears to me that the collective psyche of Americans has shifted. The sunny optimism of people has been replaced with an uneasiness which will take a very long time to shake. Many who have returned to the workforce after being laid off in the big downturn are now working for less and sometimes far less than they did back in 2007 when the economy, especially the consumer economy, was firing on all cylinders. Young people are finding it difficult to get on a career track and those with fragile egos now suffer from a stigma of underachievement. Those who suffered from foreclosure will be haunted for years and some will drop from the middle class permanently.

As marketers what does this mean to us? Plenty. If you work in marketing, advertising, or media you are likely to be in that top 5% who is doing just fine, thank you. However, you are often selling to a large group who is struggling. And, there are entire markets that have been savaged. Again, this is unusual as generally, in a recovery, the uptick pulled all markets up. Consider real estate. Owning a home has been the American dream for decades and government tax policies encouraged  it. From their peak in 2006 to the bottom in 2010, housing prices in Las Vegas fell 58%, Phoenix 55% and Tampa 45%. Speculators have moved in and bought up distressed properties but there remain millions of American homeowners who are delinquent on their mortgage or are underwater (their house was worth less than the principal on the mortgage). These people are nervous and unlikely to spend as they once did for a very long time.

So, what does this mean to marketers? For higher end products, media and market selection has to become more careful than ever. Some 25% of Seattle residents have graduate degrees while 2% is the norm for most markets. So, for expensive clothing, cars, vacations, expensive wine and liquor and a host of other products and services, Boston, Washington, DC, New York, San Francisco and Denver merit special consideration and overweighting. Pockets in Atlanta, Dallas-Ft. Worth, Houston and Chicago also deserve attention. Some markets should simply be avoided period as the purchasing power is simply not there. The large group of Americans with a high school education or less are falling further behind than ever as our industrial base has not been revitalized despite the claims of politicians. As always, the higher your education, the greater your income so the “brainbelt” markets are a place where many advertisers can expect a solid return relative to less educated areas.

Many broadcasters will nod and smile when I present this line of thinking but those in markets where things remain challenging do not seem to grasp that their struggles will continue for at least several more years. The economic world has changed and our culture is shifting as well. Talk to a few very well educated and eminently well paid young adults on the fast track. They have friends all over the world and they are a bit detached from what is going on in the Wal-Mart nation. They look to New York, London, Seattle, San Francisco, Washington, Singapore, Hong Kong and Beijing as the center of the universe. They do not see the uneasiness that many Americans feel or associate with many who are having a hard time right now.

So, publications, cable channels, and digital options that cater to the well heeled should do really well over the next several years. For other media types, the issue will be what share of the pie they can garner for products that have broad appeal or are necessities.

Long term, I remain optimistic about the future. Keep in mind, my friends, that the healing process from the Great Recession is barely underway and it will take a long time for things to return to “normal.”

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com

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