Consumer
Knowledge
Knowledge
According to the Commerce Department spending in the United States has not risen for over three months. Why are people in the United States not shopping and spending their money in the economy?
Personal consumption expenditures which measures how fast people are spending their money in the United States economy rose at normal rates of .5% or 6% on an annualized basis in the months of February and March. But since March personal consumption rates have not risen at all as Americans have slowed their spending and shopping.
Personal Consumption Rates in 2010 by Month
February spending rose .5%
March spending rose .5%
April spending declined by -.1%
May spending rose by .1%
June spending was .0%
On an annual basis personal consumption levels have not risen at all from April through June. Clearly people are not spending their money at anything close to a normal rate or level. Americans are keeping their money in their wallets and not shopping but why?
The answer is simple - because money is worth more today than it was in the recent past going back a few years. When money appreciates in value people will slow their spending because no one wants to spend something that has or is gaining in value.
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Beginning in 2007 as a result of the Federal Reserve having withdrawn close to $750 billion dollars of money from the US economy banks in the United States started taking massive write-offs of loans. As the write-offs of loans continued less money was available in the economy so all remaining money appreciated in value. As money appreciated in value personal consumption rates plummeted as people refused to spend their money that has gained in buying power.
As long as money has appreciation people will continue to spend their money at lower personal consumption levels. It is human nature for people to act in their own best interest and when money has gained in value it is not in anyone's best interest to spend their money at accelerated rates.
Until money starts depreciating in value consumers in the United States economy will continue to spend their money at subdued personal consumption levels.
For more see Why Consumer Credit and Credit Card Debt Keeps Dropping in the United States
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Source:http://www.bea.gov/newsreleases/national/pi/pinewsrelease.htm
I think that spending is down because of the high unemployment rate and that so many Americans are now underemployed. Also, in the past so many used their home equity loans to purchase items, and now the home equity is lower. Not much is moving in this economy it seems like.
I believe that unemployment and economic recession cause most Americans to be careful while spending. The currency rate for US dollars drops meaning the buying power also drops due to the rise in prices.
It's like the chicken and the egg. Are people not spending because of high unemployment or are people unemployed because no one is spending their money so businesses can't hire new workers?
I think jobs need to come first. People with a decent paycheck will always spend their money on something. Consumers may not be as reckless as they once were, but teens and younger people could be big spenders. The unemployment rate among teens is something like 26% now in the US. But after saying all of this, I look at people lined up to buy the latest Apple iPhones. There must be money somewhere.
Yes Sam, it's not that people don't have money they just are not spending their money at high enough levels to create jobs. If people were increasing their spending at a 6% annual rate we'd see job growth. But right now there's no growth in spending so no job growth.
Consumer spending usually creates a lot of the consumer item retail jobs. From the small business owners I have talked to, there is nothing really moving in many industries. People want to get projects started and bosses want to hire, but the government confusion has stopped a lot of new hiring and new work. Banks are still a problem, small business owners do not know about taxes or health care. It takes a lot of money really to hire a new employee. The economy seems to just not be moving.
Until the appreciation in our money is gone Sam the economy will remain in neutral as spending remains subdued. Confusion as to what is going to happen with taxes and health care doesn't help either. It's a tough economy for everybody right now.
Best article ever. Well done! I have advice because it works: don't carry a credit card get a pre-paid credit card from any currency exchange. For example, I load it with 100.00 and use it to buy online purchases or emergency gas funds. Keep money out of banks, they are closing fast. I have no credit cards, no debts, "0" and I live within my means. How many can say this? Not many. I learned from my mistakes in the past. I have been through a divorce, and Bankruptcy over 7 years ago. The new thing I hear in Illinois is that companies Cannot check your credit any longer, it's a new law that passed. That is a good change for many.