There is growing concern that the housing crisis that caused this economic recession isn't over and is only going to get worse. Overall, nutraceuticals have held up reasonably well so far, although some individual segments have suffered. Therefore, it is worth exploring which segments pose the most risk should the economy continue to decline.

This is the first issue to address because several analysts have been calling the slowing pace of decline "green shoots," indicating that the recession is ending. But there are two things to keep in mind. First, all of the major economic indicators are still declining. Even if the rate of decline is slowing, they are still getting worse! Second, even the Great Depression was not one giant recession-it was actually a series of three separate, distinct recessions.

This is relevant because this recession started when thousands of subprime adjustable rate mortgages suddenly had their rates adjusted and the borrowers could no longer afford them. Well, this was only the beginning.

Figure 1 from an IMF report shows that the market just finished the first wave of these resets. In the next two years, there will be two more rate resets on loans that also require the borrowers to begin paying higher principal amounts. Further, there is much more detailed research showing that default rates in nearly every type of mortgage are increasing now, despite the supposed "green shoots" that are sprouting.



In order to understand the impact the housing crisis has had on nutraceuticals, it makes sense to compare data from just before the crisis to data today. One of the first things you'll notice is that from May 2008 to May 2009 consumers decreased their spending on supplements significantly (Figure 2). Many analysts have noted that private label brands are increasingly prominent and this may contribute to the decline. However, the number of consumers saying they spend nothing on supplements jumped from 46% last year to 58% this year. That is a significant shift that is not explained by consumers trading down to lower priced products.



Another startling change is that the number of "diehard" supplement users is falling. The portion of consumers who say they would not economize on their supplement usage in the face of a worsening economy fell from 37% to 30%-this means the diehards group is now 20% smaller compared to a year ago (Figure 3)! Fortunately, the encouraging part of this research is that nearly all of the lost diehard consumers are men, who are not the main purchasers of supplements in the U.S.



Obviously individual categories will differ. In fact, part of the reason many supplement categories like multivitamins have held up so well throughout this recession is that consumers have indeed traded down. But they are trading down from conventional healthcare and focusing more on how nutrition can improve their lives. What this research highlights, though, is that there may be more weakness beneath the surface than many in the supplement industry are seeing right now. Clearly consumer attitudes and intentions are changing as a result of the recession, so take care to plan carefully for how it could affect nutraceuticals if it gets worse, or there will be more waves of declines to come.