Consumer spending is down, do you think it's because of fear, the wealth effect or credit issues?
Answers
2775 points
Oldman answered 10 months ago …
I think consumers are trying to reduce expenditures in a recession. Finally (after increasing their personal debt for a decade), they may be cutting back on discretionary expenses (investment, durable goods, home purchases, electronics items) - - expecting lower prices in the near term...waiting for bargains is the general idea. I'm not an economist or active trader, so I may be projecting my own concerns going forwards.
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3963 points
MNSL answered 10 months ago …
Consumers want to limit their expenses on certain sectors in a recession now.
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2222 points
readytoretire answered 10 months ago …
As banks have tightened credit, home equity or refinancing to get cash out of houses has disappeared. So that source of income has gone for the consumer. And the spending of equity in their homes has been a powerful driver the previous 4 years. So this source dries up. If you look at the average amount of credit card debt that the average US family has, they are about at the limit, and banks are scaling back limit amounts, so there went another source of funds. Now companies are cutting back on overtime, temp workers, and starting to make cuts in permanent workers. So the excess money from overtime or temp workers leaves also. As people hear about job cuts in their industry, they start to fear that it could happen to them, so they decide to save some. This cycle feeds on itsself and soon there will be more cuts and more fear, so fewer purchases. Want to buy a house when the prices are dropping. Why not wait a few months and get it cheaper. Want to buy a car (and warranty) from a company that may not be around in a few year. Let's wait and see if they can make it. And the price may be better then.
Years ago the thought was to deny yourself things now to ensure a better future. But for the past decade, it has been I want it now. Now we are changing and the economy suffers for it, although it will be better off in the future for having had savers with actual cash to spend.
379 points
dustbusterz answered 10 months ago …
it is due to all that you just mentioned. You have 4 million who have lost their jobs. thats 4 million who can't spend like before. you have another 6 million who work only 20 hours a week now. again 6 million who cannot spare that extra cash for a new t.v. or car. then you have the 600 million worried weather they will get the pink slip this week so they are hoarding all the cash they can keep from spending on higher food costs and higher electric and water charges. also most peoples credit was cut by the credit card companies giving them less available credit so they again, cannot spend. then they used to borrow against their home equity,but home prices wiped that out and banks are not lending . there you have it, this is why consumer spending is down.
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Afghanistan answered 8 months ago …
I think it's all of it together.
Banks give less credit, people are trying more and more to save money.
362 points
smi answered 6 months ago …
Recession had brought together wealth effect and credit issues together...
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MNSL answered 6 months ago …
Actually inflation has not come down yet much. Despite collapse of commodity market still prices of soya oil, vegetable oil, flour, bread, rice, dairy products, baby products, sanitary items, drug, egg, cereal, Grain and has not come down in super markets. Then gold price has not come down in gold shops.
However income has not increased and instead we see massive wealth destruction together with massive job losses globally. How can we expect consumer spending to go up?
We will have less spending in following in the next 3 years.
Gold and diamond jewelries, leathers, tires. steel, cement, computers, copper, electronic, cars, boats, gas and oil, clothes, heavy and light equipments, tiles, ceramics, some fruit drinks, travel, arts and other luxury items etc.
I think some discount retailers will benefit most.
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