Buzzword: Recalibration

What it means. Calibration is typically associated with things like measuring instruments and electronics gear, which need to be tweaked for optimal performance. And President Barack Obama got into the calibration game after he reviewed his initial response to the July 2009 arrest of Harvard professor Henry Louis Gates Jr., saying, "I could have calibrated those words differently." When it comes to the U.S. economy and consumers, the key phrase these days is recalibration.

"We're in a state of recalibration," says Edward Farrell, a director of the Consumer Reports National Research Center, which produces the monthly Consumer Reports Index, the latest installment of which came out this week. His observation came after several months of uninspiring consumer sentiment in the CRI, a monthly telephone poll of a nationally representative sample of American adults.

Why the buzz? While green shoots might hint at a stabilizing economy, a full recovery hasn't arrived yet, and during this time of recalibration, American consumers have adjusted to that new economic by changing how they spend. "We've seen a loss of confidence by consumers in the old rules, for example, that they'll have more money in their house 10 years from now or that their 401(k) will help carry them through retirement," says Farrell.

Paco Underhill, retail consultant and author of Why We Buy: The Science of Shopping, agrees. "We are never going back to the we way were," he says. "Americans have had a considerable financial shock. Virtually everybody has traded down, and conspicuous consumption is now viewed as bad manners."

None of this bodes well for holiday sales. But neither Farrell nor Underhill is predicting a bloodbath from now through Black Friday and beyond. "A rally might actually be under way for retail heading into the holidays, with personal electronics leading the charge," says Farrell. He notes that according to the latest CRI, a quarter of consumers plan to buy personal electronics this month, up 5 percentage points from October.

Underhill anticipates healthy sales for comfort gifts, such as food baskets, fine wines, and beauty products. "I think this holiday season will be better than many retail pundits are predicting because people want to show compassion in troubled times." For his own gifts, Underhill says, "When people ask me what I want, I tell them one pair of black cashmere socks. They are warm, they are eminently practical, and I wouldn't buy them for myself because they're expensive. But for $20, it's the ultimate answer of what to get an aging male."

Farrell would like to see continued stability in the Consumer Reports Sentiment Index, which captures respondents' attitudes regarding their financial situation. "Yes, we want people to spend and save responsibly," he says. "But we also need there to be a feeling of optimism."

Without that, instead of talking about recalibration we could be discussing a lost decade. Also check out our growing roster of Buzzwords.—Daniel DiClerico | e-mail | Twitter | Forums | Facebook

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