Last month was the first time consumers spending dropped since January. This past month was only the third time consumers cut spending since the end of the recession in mid-2009. The spending cut was unpredicted by economists and expresses Americans raising doubts about the economy's ability to continue at the growth rate it has been experiencing the past few months, especially over the summer. Overall household spending dropped 0.2% from August, which may not seem like a lot but in the grand scheme of things has a large impact on the economy and consumers confidence in their wallet. The drop reflected a big decline in elastic, or expensive non-necessities, such as cars.
These reports offered red flags on the economy's stability, just a day after a strong reading on third-quarter economic growth. On Thursday, October 30th, the government released a report saying that GDP grew at a 3.5% annual rate from July to September. The report also expressed that the inflation rate is below the desired 2% by the Federal Reserve's annual target. Consumer spending is the biggest component of GDP growth, around 70%, so if people do not spend, America as a whole cannot expand. The report also showed that Americans saving rate increased to 5.6%. Obviously is spending goes down, saving will naturally increase. So is the economy experiencing a drop again, or do you believe it is just the American citizens inability to believe in their economy?
Sources: http://online.wsj.com/articles/u-s-consumers-cut-spending-1414758842
Is it possible that these findings are seasonally affected? Perhaps households are saving more now in anticipation of the holiday season and will consume more in the months to come.
ReplyDeleteI agree that the findings are likely affected by the season. Many Americans do doubt the strength of the recovery, but these months between back-to-school and holiday shopping are not usually expected to have as much consumer spending and this could explain at least part of the drop in consumer spending. The drop may be a bit larger because of the uncertain future of our economy.
ReplyDeleteI feel that there might be a seasonal effect upon these rates mainly because seasonal fluctuations are such that the demand would be different in the holiday season than it normally is.
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