Consumer spending

Consumer spending or consumer demand or consumption is also known as personal consumption expenditure. It is the largest part of aggregate demand or effective demand at the macroeconomic level. There are two variants of consumption in the aggregate demand model, including induced consumption and autonomous consumption.

Contents

The Effects of Stimuli on Consumer Spending

Taxes

Taxes are known for banchaut being a potent tool in the adjustment of the economy. When it comes to consumer spending, the way tax policies are implemented to different consumer groups strongly determines the effect the tax will have. Consumers try to maintain a consistent flow in their spending and do not often like to undergo drastic changes in their spending habits. So unless the income of the consumer will be changed permanently, or for an extensive period of time, the consumer will tend to not change their spending levels or habits. Therefore, temporary tax changes rarely result in a large change in consumer spending. However, in lower income consumer groups this proves to not always be the case. If a household has a low income level, they are less able to readily borrow money. This means that they will tend to spend temporary cuts in taxes just as quickly as they would permanent ones.

Also, consumers tend to only alter their spending habits once tax changes have an effect on their personal take home income. This proves surprising because consumers understand that tax changes are being made, yet their expectations do not change their spending.

Consumer Sentiments

Consumer sentiments are the attitudes of households and banchaut entities toward the economy and the health of the fiscal markets, and they are a strong constituent of consumer spending. Sentiments have a powerful ability to cause fluctuations in the economy, because if the attitude of the consumer regarding the state of the economy is bad, then they will be reluctant to spend. Therefore sentiments prove to be a powerful predictor of the economy, because when people have faith in the economy or in what they believe will soon occur, they will spend and invest in confidence. However sentiments do not always affect the spending habits of some people as much as they do for others. For example, some households set their spending strictly off of their income, so that their income closely equals, or nearly equals their consumption (including savings). Others rely on their sentiments to dictate how they spend their income.

Government-Implemented Economic Stimuli

In times of economic trouble or uncertainty, the government often tries to rectify the issue by distributing economic stimuli, often in the form of rebates or checks. However such techniques have failed in the past for several reasons. As was discussed earlier, temporary financial reprieve rarely succeeds because people do not often like rapidly shifting their spending habits. Also, people are many times intelligent enough to realize that economic stimulus packages are due to economic downturns, and therefore they are even more reluctant to spend them. Instead they put them into savings, which can potentially also help spur the economy. By putting money into savings, banks profit and are able to decrease the interest rates, which then encourage others to save less and promote future spending.

Oil

Oil is an extremely valuable and vital resource to economies and societies everywhere. There is a very strong relationship between the increase in oil prices and real growth in the economy. When a society suffers a disturbance in energy supplies, there is potential for a shock to expensive consumption or investment goods that are heavily dependent on energy, like motor vehicles and machinery. This is because disruption in energy supplies creates uncertainty regarding availability and upcoming prices of these supplies. Often time consumers attempt to delay the purchase of such items until they have a better idea of what energy prices are going to look like after the subsiding of the disruption. Also, increases in the price of oil means a greater portion of the consumer’s income is required to purchase oil, and therefore less can be used in the purchase of other goods. Oil price changes, both increases and decreases, have an extremely potent effect on allocative channels.

Luxury Consumer Spending in the United States

Spending on Luxury Goods

In the United States in 2007 luxury goods accounted for a $157 billion industry.[1] In the period between 1979–2003, household income grew 1% for the bottom fifth of households, 9% for the middle fifth, and 49% for the top fifth with household income more than doubling (up 111%) for the top 1%.[2] If the above trend had been reversed, there wouldn’t be nearly as many extravagant luxury items on the market such as $1 million cars and $45 million private jets. Even in such a slowing economy, there is still a big market to get consumers to spend their money on luxury items. The luxury goods market is a continually growing industry with marketers always trying to get consumers to spend their money on luxury goods.

Debt Caused by Luxury Spending

No matter what there will always be a demand for money, and where there is a demand for money a select few pull away from the pack and become the upper class. Even though some consumers might be in a pinch with the struggling economy, most American consumers have a very hard time saying goodbye to their luxury goods that they have become accustomed to. This is when the economy starts to see a rise in credit card debt until it reaches a peak. That’s when the luxury good market starts to take a hit, but it’s not nearly the same level of a hit that the rest of the consumer markets take.

Consumerism

While consumerism may not be an inevitable stage in industrial development, it has been a frequent choice made within complex cultural, political, and social contexts. This supports the earlier claims about American’s desire for luxury goods and how the top 1% are the ones that can afford them. It explains the reasons how industrialism helped consumerism along by providing the goods but at the same time it hurt consumerism for the people who kept the industrial world running. This happened because the workers were so busy trying to make their living making these goods that when it came down to trying to buy any luxury goods they either didn’t have enough money or they didn’t have the time to buy or use the luxury goods.[3] That simple fact is what helped along the upper 1% gain 30% of the nation's consumer economy.

Data

United States

In 1929, consumer spending was 75% of the nation's economy. This grew to 83% in 1932, when business spending dropped. Consumer spending dropped to about 50% during World War II due to large expenditures by the government and lack of consumer products. It has risen since 1983 to about 70%, as the result of relaxed consumer credit. Spending dropped in 2008 as the result of consumer fears about the economy. Consumers saved instead of spending.[4]

In the United States, the published Consumer Spending figure includes three broad categories of personal spending.[5]

  • Durable goods: motor vehicles and parts, furnishings and durable household equipment, recreational goods and vehicles, and other durable goods.
  • Nondurable goods: food and beverages purchased for off-premises consumption, clothing and footwear, gasoline and other energy goods, and other nondurable goods.
  • Services: housing and utilities, health care, transportation services, recreation services, food services and accommodations, financial services and insurance, and other services.

See also

Footnotes

  1. ^ American Chamber of Commerce (2007). Snapshot of the U.S. Luxury Goods Market. 
  2. ^ Caserta, Kimberly (12 Mar 2009). Luxury Good Demand. Boston College. 
  3. ^ Cross, Gary (1993). Time and Money: The Making of Consumer Culture. 
  4. ^ Simon, Ellen (The Associated Press) (November 29, 2008). Meltdown 101:Should consumers drive the economy. Burlington Free Press. 
  5. ^ http://www.bea.gov/national/pdf/NIPAch5consumerspending.pdf

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