Consumers Just Don’t Want to Buy

Published on Saturday, 31 December 2011 18:45

David Simmons

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The Commerce Department released figures of consumer spending for the month of August today, these showed a drop from 0.7 per cent in the previous month to 0.2 per cent now. As incomes dropped by 0.1 per cent, a first since October 2009, in the United States households were forced to utilise their savings. In addition to the o.2 per cent spending there was also a price rise of 0.2 per cent which in essence nullified the rise in spending.

The US is on the verge of another recession with reduced employment rise, almost stationary wages and a stock market that is steadily approaching the bear market territory. This has forced policy makers, right from President Obama to the Federal Reserve to come up with additional measures to keep the economy from slipping in to another collapse like the one in 2008.

Market experts had forecasted that the income would climb by 0.1per cent, which turned out to be diagonally opposite to the real situation. In this drop, the wages and salaries of the people dropped by 0.2 per cent; a drop that was last seen only in July 2009. The savings rate in the country also dropped to 4.5 per cent, down from the 4.7 per cent it was last month. This is also the worst saving s rate since December 2009.

This stagnation of the spending by consumers is directly related to the stagnating employment levels in the country. The employment remained unmoved as compared to July, with the unemployment constant at 9.1 per cent.

There are various different gauges used to measure the spending and the price levels in the market, the one which is used by the Fed, which excludes the prices of food and fuels, climbed only 0.1 per cent. This would be the smallest increase in it since March, in July it rose by 1.6 per cent. Another measure used is the retail sales, which was unchanged in August. The larger consumer retail chains are suffering due to this.

This drop is also related to the slump in the stock markets. The Standard & Poor’s 500 is heading for its fifth straight month of losses, which makes this the biggest losing streak since March 2008. The index has lost 12 per cent in this quarter alone, while over the whole year it has lost 7.7 per cent.

To counter this distress in the economy, both Obama and the fed have come up with different plans; Obama has announced what is being termed as the ‘Buffet plan’ while the Fed has launched it’s ‘Operation Twist’.