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A recent article (click here) talks about how consumers have been spending more, upping total sales by 10% compared to the levels this time a year ago. The author, and others, seem very positive about this long awaited push in consumer spending after so many months of careful saving (bringing the personal savings rate up to 5% compared to the 3% normal average, as mentioned in the article).
While it's great that businesses are starting to see profits again, it brings up the question of whether or not an increase in consumer spending is really a good thing.
From the article: “The more money the consumer spends, the worse shape our economy is going to be in,” said Peter D. Schiff, president of Euro Pacific Capital, “because we are spending borrowed money.”
Spending, especially on credit, won't do our country any good if consumers can't afford it. The situation just sounds somewhat similar to the housing crisis we talked about in class. With the amount of debt our country is currently in, shouldn't we be saving (to pay off debts) rather than spending?
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No offensive to any baseball players but shopping is America's national pastime. After Septebmer 11, President Bush encouraged us to go and shop or the terrorist win. Consumer speding is an essential part of our economy and plays an important role in economic recovery. I think that the increase in consumer spending is a good thing because it shows a level of consumer confidence we did not have in 2008.
ReplyDeleteI disagree with Peter Schiff. An increase in spending does not mean that all the money being spent is borrowed. It can simply mean that people are regaining confidence in their spending habits and are spending excess funds.
ReplyDeleteConsumer spending stimulates the economy. Schiff should emphasize the avoidance of spending beyond ones means and not just stopping spending (e.g., buy a home within an appropriate price range or cut back on large holiday spending).
Also...it is Chloe's birthday today :)
By itself, I think consumer spending is good. It fuels our economy, creates jobs, etc. However, I think in the past we have had too much of a good thing with consumer spending. Our real savings rate was at or near 0 for years. We also need savings to fuel economic growth (savings ->investment). Therefore, I think this is good news as long as we don't go back to zero saving.
ReplyDeleteI agree 100% with Matt. Well said.
ReplyDeleteI think Chloe(happy late b-day) and Matt both have good points, maybe it is a time to spend more or maybe a time to be saving. However, I think it is a time where we could be using our money to invest. Buying stock in some choice firms could be a good idea considering it is a time where innovation and economic growth is essential and stocks are a safe investment. I do wish I would have invested in gold a few years ago, SCOTTS IS BUYING!!
ReplyDeleteI think that consumer spending is a large part of our economy, but that saving is an even larger part. My grandpa is 80 and still has a job as a real estate agent because he couldn't afford to retire like many Americans. So instead of spending his retirement funds as a consumer he is paying off debt and holding a job that could go to a recently graduated college student. I took my broken and outdated jewelry to SCOTT'S and got a Great Deal!
ReplyDelete