Consumer spending is 70% of American GNP. That's a lot and it is what keeps the US economy humming. And consumer spending has its ups and downs. When it is up, things are good all over. When it is down people are thrown out of work, business profits disappear and gloom covers the land. The financial pundits at least understand this, and they have devised theories to account for swings in consumer sentiment and even indexes of consumer sentiment that claim to predict consumer behavior.
Most things consumers spend money on are discretionary. They don't have to buy a new car, at least not this year. They can postpone buying a new house. They can put off home maintenance projects like new siding, remodeling the kitchen, or reroofing. They can skip back to school buying and send the kids to school in hand-me-downs. They can put Santa in the closet and put the Grinch in charge of Christmas buying. About the only things consumers absolutely have to buy are groceries, utilities, and the rent. When consumers feel stressed, they cut back spending as much as they can, which sends the larger economy into a tailspin.
A powerful driver of consumer spending is the job market. If the consumers fear loosing their jobs, they will cut back everywhere they can. If they feel their jobs are safe and secure, then they are willing to spend on stuff. Obama and Obamacare made everyone fear layoffs which kept GNP growth down around 1%. With Trump everyone feels secure in their jobs and we have GNP growth up around 3%.
Not to panic the American consumer. Bad things happen if you do.
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