Consumer Spending
Consumer Spending
ECO 2301
Principles of Macroeconomics
Anthony Le
November 30th, 2011
Consumer Spending Consumer spending is defined as “the goods and services bought by the households in the satisfaction of their wants and needs.” (BusinessDictionary.com). It is also known as personal consumption expenditure and is the largest part of aggregate demand or effective demand at the macroeconomic level. Why is consumer spending important in the U.S. economy? In fact, consumer spending is the single biggest determinant of the U.S. economy’s health, accounting for about two-thirds of the United States’ annual Gross Domestic Product (GDP). A decline in consumer spending could spoil the U.S. economy or certain market sectors. By paying close attention to the economic reports that track consumer behavior, one may be able to distinguish significant changes in spending habits and adjust their portfolios accordingly. The purpose of this paper is to examine different aspects that could affect the consumer spending, determining whether consumer spending could drive a recovery in the economy, and knowing when and how to get the consumers to spend again. Perhaps, at the end, we as the consumers could really help drive this economy out of its slump by understanding consumer behavior and adjusting our spending habits suitably. Everyday, consumers make decisions about goods and services we purchase. There are several factors that affect these decisions. Some of these are prices, choices, needs, etc…Apart from these; there are also others that change consumer spending. One such factor is the level of their income. As the expectations of future income and employment decrease, the level of consumer spending also decreases and the level of saving starts to increase. The willingness of people to make major spending commitments depends on how confident they are about both their own financial circumstances, and also the general state of the economy. Research shows that in
ECO 2301
Principles of Macroeconomics
Anthony Le
November 30th, 2011
Consumer Spending Consumer spending is defined as “the goods and services bought by the households in the satisfaction of their wants and needs.” (BusinessDictionary.com). It is also known as personal consumption expenditure and is the largest part of aggregate demand or effective demand at the macroeconomic level. Why is consumer spending important in the U.S. economy? In fact, consumer spending is the single biggest determinant of the U.S. economy’s health, accounting for about two-thirds of the United States’ annual Gross Domestic Product (GDP). A decline in consumer spending could spoil the U.S. economy or certain market sectors. By paying close attention to the economic reports that track consumer behavior, one may be able to distinguish significant changes in spending habits and adjust their portfolios accordingly. The purpose of this paper is to examine different aspects that could affect the consumer spending, determining whether consumer spending could drive a recovery in the economy, and knowing when and how to get the consumers to spend again. Perhaps, at the end, we as the consumers could really help drive this economy out of its slump by understanding consumer behavior and adjusting our spending habits suitably. Everyday, consumers make decisions about goods and services we purchase. There are several factors that affect these decisions. Some of these are prices, choices, needs, etc…Apart from these; there are also others that change consumer spending. One such factor is the level of their income. As the expectations of future income and employment decrease, the level of consumer spending also decreases and the level of saving starts to increase. The willingness of people to make major spending commitments depends on how confident they are about both their own financial circumstances, and also the general state of the economy. Research shows that in
References: Chandra, Shobhana. “U.S. Consumer Spending Unexpectedly Falls as Hiring Slumps.” Businessweek 02 August, 2011: accessed 28 November, 2011.