http://money.cnn.com/2010/01/21/news/economy/recovery_without_consumers/index.htm
This article argues that even though consumer spending accounts for more than two thirds of the nation's economic activity, the economy can recover well without a significant help from consumers. The author argues that an investment-led recovery is better for the economy in the long run by creating greater productivity. He also believes that US export growth will also help in the recovery, and will create more job opportunities in the US.
I believe that what the author of this article has to say about consumer confidence is accurate. While consumer confidence has a large impact on the circulation and velocity of money in our economy, a more balanced recovery would be more desirable than a dramatic increase in consumer confidence. Our economy needs drastic increases in the exportation of goods and services along with domestic employment. President Obama's State of The Union briefly addressed these issues. The issue of consumers not being confident in spending their cash on discretionary items along with home buying should be an area of concern because it does have a large impact on growth and a healthy economy. However, there are other problems that must be addressed in addition to consumer confidence.
ReplyDeleteThis article refers to the ‘myth’ of a consumer-led recovery and how restocking of depleted inventories could substantially increase economic activity. GDP was believed to have dropped by 6.4% in the first quarter of 2009 for this very reason of business’ reduced inventory. The problem of consumers increased spending through easy credit and accessing home equity lines 2001 will not fix the problem this time around. This article concludes with the idea that some still believe that increased business spending will show by the increase in GDP, but consumer confidence will not change and it is required to improve the total outcome. Both may still be needed in order to fix the total damage caused by the ‘Great Recession’ according to this article. In order for a sharp rebound it could require both business spending and consumer demand to increase simultaneously in order for there to be a full turnaround. This is also clear from the trends in consumer confidence indices when looking at the differences from past years.
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