Understanding the Impact of Consumer Spending

picture-1As unemployment increases, consumer confidence decreases. As consumer confidence decreases, consumer spending decreases. As consumer spending decreases, corporate earnings decrease – absent any efficiency gains or work force reductions. As corporate earnings decrease, GDP growth decreases. All of this leads to either more unemployment or a stagnant employment picture for some period of time. Something has to give to change this vicious cycle and we believe that the catalyst could be consumer spending as consumer spending accounts for over 70% of economic growth in our country.

Despite some recent encouraging reports related to consumer spending, consumer spending behavior is clearly still suffering from the recession that began in December of 2007. According to a fairly recent ChangeWave Research survey, 37% of the individuals surveyed expected to spend less over the first 90 days of 2010 than they did over the same timeframe last year while only 25% believe that they will actually spend more. We do not see this trend changing significantly anytime soon.

I am not alone in our less than glowing consumer spending forecast as a recent Nielson Company survey concluded, “Consumers will continue to be cautious with their spending in 2010.  With unemployment still a concern, buyers will spend but with great restraint.” We have said it before and we will say it again now, the U.S. economy cannot build a sustainable recovery without the U.S. consumer.