The Importance of the U.S. Consumer

To borrow from an often used slogan, with slight improvisation, “It’s the spending stupid.” The surest way to get our economy back on track again is to have businesses and, even more importantly, consumers start spending again. In an economy where 70% of growth comes from spending, reports that show Americans saving more and spending less are generally not received positively by economists. The question then becomes how best to achieve this seemingly simple objective of encouraging individuals and companies to start spending again.

On the positive side of things, businesses are starting to do their part. According to the U.S. Census Bureau, new orders for manufactured durable goods increased by 1.8% in May. This represented the third monthly increase in the prior four-month period. While the amount of the recent rise and length of the upward trend may seem insignificant, it does suggest that companies may believe that the recession is coming to an end by the fact that they are starting to make more capital outlays.

Consumers, on the other hand, seem reluctant to open their wallets for several reasons. First, most consumers lost a considerable amount of personal wealth in 2008 in their investment portfolios, 401(k) plans and real estate holdings. Presumably, consumers are now looking to rebuild their net worth before considering making big-ticket purchases. Second, more and more Americans are now out of work or facing the prospects of potentially being out of work in the near future. The employment picture will take a while to improve due to the large inventory of individuals looking for work along with our belief that new jobs may be in areas of the economy where many of the unemployed do not have prior experience. This does not bode well for much needed increases in consumer spending despite recent advances in consumer confidence. The U.S. economy cannot recover without the U.S. consumer.

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