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Are consumers responsible for economy?
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A teaser headline atop the Idaho Statesman today reads, "Consumers still aren't spending, hampering economy". Did you get that? We, the taxpayers and consumers of America, are not doing enough to save ourselves from the recession. Never mind corporate irresponsibility. Ignore out-of-control government spending. Consumers should be spending more, even while we are continually reminded that its our over-spending and debt that got us into this mess.
All of this is based on a report that came out yesterday indicating that consumer spending fell 0.1 percent instead of the expected rise of 0.7 percent. The conventional wisdom of "when the going gets tough, the tough go shopping" does not hold true these days. And who can blame them? Though there was some positive economic news during the month, there were still reports of rising unemployment, more focus on the rising Federal deficit and how the health care overhaul may drive it down even further, and the mixed blessing of Congress looking to pump $2 Billion more into Cash for Clunkers.
Perhaps the biggest surprise, though, is that teenagers are becoming more conservative as well. Teen clothing retailer Abercrombie and Fitch posted losses yesterday. Analysts believe teens are still spending, but are choosing to avoid high-end retailers. They also point out a larger trend of Americans increasingly doing without rather than risk over-extending their finances during tough times.
Even good news is met with skepticism and caution these days. A report released today indicates that industrial production rose 0.5 percent in July after 0.4 percent decrease in June. But much of the credit is being given to the Cash For Clunkers program spurring new production in the auto industry, and analysts are still advising caution:
Industrial production likely will remain healthy for the rest of the year as companies restock depleted inventories, said Joshua Shapiro, chief U.S. economist for MFR Inc. But a longer-term rebound will depend on greater consumer demand.
"On that score, we believe that the recovery process will be subdued and uneven," Shapiro wrote in a note to clients.
Consumer spending is a two-edged sword. The economy thrives on consumer spending, yet too much spending results in crippling debt and can kill the economy. If we have to choose between riding out a poor economy and having consumers return to their old habit of over-spending, the better choice may very well be to continue to struggle economically for awhile until consumers regain some common sense and get their financial legs under them again. It may hurt for awhile, but the country may very well come back much, much stronger in the long run.
If you enjoyed this article, here are some others you may enjoy:
- Jobless recovery in the "man-cession"
- Businesses and consumers may choose to leave the belt tight
- Moody's predicts Idaho among first states to rebound
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