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Factors That Are Affecting Consumer Spending

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It is not a secret that consumer spending in the United States is down by significant margins.

Consumer spending, designated personal consumption expenditures by the government, dropped at an annualized rate of 1.2% in the second quarter of 2009. This has proven to be a larger decline that was estimated by government analysts prepared for the economy as a whole. During the second quarter, gross domestic product contracted at an annualized rate of 1%.

The charge for this state of affairs has been leveled at the American consumer. By and large, they are spending less because their incomes have lowered due to the recession. Of course, there is a consolation in the fact that spending will rebound as soon as incomes recover. This good news may be mitigated by the idea that there could be protracted deleveraging of household balance sheets. It could mean a much slower recovery as consumers borrow less and save more.

There may be some factors that determine how you choose to answer this question of outcomes and the projected performance of the stock market.

A look at the numbers may be instructive. Naturally, decreased incomes are a problem. Some of the most recent figures released by the Department of Commerce, personal incomes fell 1.3% in June. The amount was expected by economists who figured that a 1% drop was inevitable. With inflation taken into account, real personal income dropped 1.8% in the month. Still, there was been a rise in savings despite this drop in personal income.

This brings up more questions than it does answers. Certainly, if personal incomes were on the decline, then maintaining past spending would demand the consumers to hold back less in savings. Rather than saving more while incomes decrease, most people are reducing spending just enough to put away a little more cash in the bank. Savings rates increased to 6.2% according to the Bureau of Economic Analysis. June’s rate was 4.6%.

It has been suggested that household savings are increasing for the purposes of reducing their overall debt loads. While this motive has not be exactly determined it may be at least characterized as a short-term reaction to the recession. Still, it could be the first step to a reversal of the savings rate drop that began back in 1993.

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