A Tale of Consumer Fatigue

January 1, 2007

I might be a pessimist by nature, but I have a hard time believing that we’re not at the brink of a recession. Maybe it’s the rain here in New York, or a turkey hangover that still has me moving a bit slower than normal, but my confidence in our economy, especially as it relates to M&A, is flagging.

This past Sunday I was eating breakfast near Grand Central, and I couldn’t understand why a bowl of oatmeal and cup of coffee cost me $10 – and I didn’t even add any fruit. But it soon hit me that everyone in my immediate vicinity was a tourist from somewhere overseas. Ten dollars doesn’t sound nearly as unreasonable when it’s translated to €6.75, but that doesn’t make it any easier for me to digest.

That same morning it also cost me $40 to fill up the tank of a Ford Taurus. I haven’t owned a car since 1999, so please excuse me if I’m five years late on reporting my sticker shock.

Meanwhile, the day before, two “value” meals at a McDonalds somewhere in between New Hampshire and New York cost me $16 plus change. I realize there’s a premium for the convenience of “rest stop” dining, but I made sure that my wife gave me credit for a date before I approved the outlay.

I’m by no means an economist, and in college nobody that sat in my vicinity was in a hurry to ever borrow my notes. So I have no idea if this inflation, a form of economic stagnation, or an inadvertent exaggeration on my part. But I do know that I’m feeling fatigued as a consumer, so I have to imagine that others – perhaps people with a mortgage, college loans or children – are also starting to feel the same kind of pinch.

Of course, all the news reports still had the obligatory shots of crazed shoppers wreaking havoc on Black Friday, so maybe my premise is completely off base. And in recent weeks, I’ve spoken with economists, investment bankers and private equity pros, and by and large everyone is confident that the deal market will rebound in 2008 from the struggles we’ve experienced in the second half of this year.

When I talk to pros focused on the mid market, that optimism is exponentially higher.
But the caveat that most of the optimists point to is the consumer -- and if the consumer stops spending, then their sunny view quickly disintegrates.

I’m not saying the consumer will stop spending anytime soon, but I can say that the next time I’m confronted with the choice between $10 oatmeal and a bag of off-brand instant, I’ll be eschewing the former. And what that means for the deal market, I’m not exactly sure, but I suppose it’s a long-winded way of saying I’m not as confident going into 2008.