Consumer spending
Encyclopedia
Consumer spending or consumer demand or consumption
is also known as personal consumption expenditure. It is the largest part of aggregate demand
or effective demand
at the macroeconomic level. There are two variants of consumption in the aggregate demand model, including induced consumption
and autonomous consumption
.
. When it comes to consumer spending, the way tax policies are implemented to different consumer groups strongly determines the effect the tax will have. Consumers try to maintain a consistent flow in their spending and do not often like to undergo drastic changes in their spending habits. So unless the income
of the consumer will be changed permanently, or for an extensive period of time, the consumer will tend to not change their spending levels or habits. Therefore, temporary tax changes rarely result in a large change in consumer spending. However, in lower income consumer groups this proves to not always be the case. If a household has a low income level, they are less able to readily borrow money. This means that they will tend to spend temporary cuts in taxes just as quickly as they would permanent ones.
Also, consumers tend to only alter their spending habits once tax changes have an effect on their personal take home income. This proves surprising because consumers understand that tax changes are being made, yet their expectations do not change their spending.
often tries to rectify the issue by distributing economic stimuli, often in the form of rebates or checks. However such techniques have failed in the past for several reasons. As was discussed earlier, temporary financial reprieve rarely succeeds because people do not often like rapidly shifting their spending habits. Also, people are many times intelligent enough to realize that economic stimulus packages are due to economic downturns, and therefore they are even more reluctant to spend them. Instead they put them into savings, which can potentially also help spur the economy. By putting money into savings, banks profit and are able to decrease the interest rates, which then encourage others to save less and promote future spending.
is an extremely valuable and vital resource to economies and societies everywhere. There is a very strong relationship between the increase in oil prices and real growth in the economy. When a society
suffers a disturbance in energy supplies, there is potential for a shock to expensive consumption or investment goods that are heavily dependent on energy, like motor vehicles and machinery. This is because disruption in energy supplies creates uncertainty regarding availability and upcoming prices of these supplies. Often time consumers attempt to delay the purchase of such items until they have a better idea of what energy prices are going to look like after the subsiding of the disruption. Also, increases in the price of oil means a greater portion of the consumer’s income is required to purchase oil, and therefore less can be used in the purchase of other goods. Oil price changes, both increases and decreases, have an extremely potent effect on allocative channels.
had been reversed, there wouldn’t be nearly as many extravagant luxury items on the market such as $1 million cars and $45 million private jets. Even in such a slowing economy, there is still a big market to get consumers to spend their money on luxury items.
The luxury goods market is a continually growing industry with marketers always trying to get consumers to spend their money on luxury goods.
until it reaches a peak. That’s when the luxury good market starts to take a hit, but it’s not nearly the same level of a hit that the rest of the consumer markets take.
may not be an inevitable stage in industrial development, it has been a frequent choice made within complex cultural, political, and social contexts. This supports the earlier claims about American’s desire for luxury goods and how the top 1% are the ones that can afford them. It explains the reasons how industrialism helped consumerism along by providing the goods but at the same time it hurt consumerism for the people who kept the industrial world running. This happened because the workers were so busy trying to make their living making these goods that when it came down to trying to buy any luxury goods they either didn’t have enough money or they didn’t have the time to buy or use the luxury goods. That simple fact is what helped along the upper 1% gain 30% of the nation's consumer economy
.
due to large expenditures by the government and lack of consumer products. It has risen since 1983 to about 70%, as the result of relaxed consumer credit. Spending dropped in 2008 as the result of consumer fears about the economy. Consumers saved instead of spending.
In the United States, the published Consumer Spending figure includes three broad categories of personal spending.
Consumption (economics)
Consumption is a common concept in economics, and gives rise to derived concepts such as consumer debt. Generally, consumption is defined in part by comparison to production. But the precise definition can vary because different schools of economists define production quite differently...
is also known as personal consumption expenditure. It is the largest part of aggregate demand
Aggregate demand
In macroeconomics, aggregate demand is the total demand for final goods and services in the economy at a given time and price level. It is the amount of goods and services in the economy that will be purchased at all possible price levels. This is the demand for the gross domestic product of a...
or effective demand
Effective demand
In economics, effective demand in a market is the demand for a product or service which occurs when purchasers are constrained in a different market. It contrasts with notional demand, which is the demand that occurs when purchasers are not constrained in any other market...
at the macroeconomic level. There are two variants of consumption in the aggregate demand model, including induced consumption
Induced consumption
Induced consumption is a term used to describe consumption expenditure by households on goods and services which varies with income. Such consumption is considered induced by income when expenditure on these consumables varies as income changes....
and autonomous consumption
Autonomous consumption
Autonomous consumption is a term used to describe consumption expenditure that occurs when income levels are zero. Such consumption is considered autonomous of income only when expenditure on these consumables does not vary with changes in income...
.
Taxes
Taxes are known for banchaut being a potent tool in the adjustment of the economyEconomy
An economy consists of the economic system of a country or other area; the labor, capital and land resources; and the manufacturing, trade, distribution, and consumption of goods and services of that area...
. When it comes to consumer spending, the way tax policies are implemented to different consumer groups strongly determines the effect the tax will have. Consumers try to maintain a consistent flow in their spending and do not often like to undergo drastic changes in their spending habits. So unless the income
Income
Income is the consumption and savings opportunity gained by an entity within a specified time frame, which is generally expressed in monetary terms. However, for households and individuals, "income is the sum of all the wages, salaries, profits, interests payments, rents and other forms of earnings...
of the consumer will be changed permanently, or for an extensive period of time, the consumer will tend to not change their spending levels or habits. Therefore, temporary tax changes rarely result in a large change in consumer spending. However, in lower income consumer groups this proves to not always be the case. If a household has a low income level, they are less able to readily borrow money. This means that they will tend to spend temporary cuts in taxes just as quickly as they would permanent ones.
Also, consumers tend to only alter their spending habits once tax changes have an effect on their personal take home income. This proves surprising because consumers understand that tax changes are being made, yet their expectations do not change their spending.
Consumer Sentiments
Consumer sentiments are the attitudes of households and banchaut entities toward the economy and the health of the fiscal markets, and they are a strong constituent of consumer spending. Sentiments have a powerful ability to cause fluctuations in the economy, because if the attitude of the consumer regarding the state of the economy is bad, then they will be reluctant to spend. Therefore sentiments prove to be a powerful predictor of the economy, because when people have faith in the economy or in what they believe will soon occur, they will spend and invest in confidence. However sentiments do not always affect the spending habits of some people as much as they do for others. For example, some households set their spending strictly off of their income, so that their income closely equals, or nearly equals their consumption (including savings). Others rely on their sentiments to dictate how they spend their income.Government-Implemented Economic Stimuli
In times of economic trouble or uncertainty, the governmentGovernment
Government refers to the legislators, administrators, and arbitrators in the administrative bureaucracy who control a state at a given time, and to the system of government by which they are organized...
often tries to rectify the issue by distributing economic stimuli, often in the form of rebates or checks. However such techniques have failed in the past for several reasons. As was discussed earlier, temporary financial reprieve rarely succeeds because people do not often like rapidly shifting their spending habits. Also, people are many times intelligent enough to realize that economic stimulus packages are due to economic downturns, and therefore they are even more reluctant to spend them. Instead they put them into savings, which can potentially also help spur the economy. By putting money into savings, banks profit and are able to decrease the interest rates, which then encourage others to save less and promote future spending.
Oil
OilOil
An oil is any substance that is liquid at ambient temperatures and does not mix with water but may mix with other oils and organic solvents. This general definition includes vegetable oils, volatile essential oils, petrochemical oils, and synthetic oils....
is an extremely valuable and vital resource to economies and societies everywhere. There is a very strong relationship between the increase in oil prices and real growth in the economy. When a society
Society
A society, or a human society, is a group of people related to each other through persistent relations, or a large social grouping sharing the same geographical or virtual territory, subject to the same political authority and dominant cultural expectations...
suffers a disturbance in energy supplies, there is potential for a shock to expensive consumption or investment goods that are heavily dependent on energy, like motor vehicles and machinery. This is because disruption in energy supplies creates uncertainty regarding availability and upcoming prices of these supplies. Often time consumers attempt to delay the purchase of such items until they have a better idea of what energy prices are going to look like after the subsiding of the disruption. Also, increases in the price of oil means a greater portion of the consumer’s income is required to purchase oil, and therefore less can be used in the purchase of other goods. Oil price changes, both increases and decreases, have an extremely potent effect on allocative channels.
Spending on Luxury Goods
In the United States in 2007 luxury goods accounted for a $157 billion industry. In the period between 1979–2003, household income grew 1% for the bottom fifth of households, 9% for the middle fifth, and 49% for the top fifth with household income more than doubling (up 111%) for the top 1%. If the above trendMarket trend
A market trend is a putative tendency of a financial market to move in a particular direction over time. These trends are classified as secular for long time frames, primary for medium time frames, and secondary for short time frames...
had been reversed, there wouldn’t be nearly as many extravagant luxury items on the market such as $1 million cars and $45 million private jets. Even in such a slowing economy, there is still a big market to get consumers to spend their money on luxury items.
The luxury goods market is a continually growing industry with marketers always trying to get consumers to spend their money on luxury goods.
Debt Caused by Luxury Spending
No matter what there will always be a demand for money, and where there is a demand for money a select few pull away from the pack and become the upper class. Even though some consumers might be in a pinch with the struggling economy, most American consumers have a very hard time saying goodbye to their luxury goods that they have become accustomed to. This is when the economy starts to see a rise in credit card debtDebt
A debt is an obligation owed by one party to a second party, the creditor; usually this refers to assets granted by the creditor to the debtor, but the term can also be used metaphorically to cover moral obligations and other interactions not based on economic value.A debt is created when a...
until it reaches a peak. That’s when the luxury good market starts to take a hit, but it’s not nearly the same level of a hit that the rest of the consumer markets take.
Consumerism
While consumerismConsumerism
Consumerism is a social and economic order that is based on the systematic creation and fostering of a desire to purchase goods and services in ever greater amounts. The term is often associated with criticisms of consumption starting with Thorstein Veblen...
may not be an inevitable stage in industrial development, it has been a frequent choice made within complex cultural, political, and social contexts. This supports the earlier claims about American’s desire for luxury goods and how the top 1% are the ones that can afford them. It explains the reasons how industrialism helped consumerism along by providing the goods but at the same time it hurt consumerism for the people who kept the industrial world running. This happened because the workers were so busy trying to make their living making these goods that when it came down to trying to buy any luxury goods they either didn’t have enough money or they didn’t have the time to buy or use the luxury goods. That simple fact is what helped along the upper 1% gain 30% of the nation's consumer economy
Consumer economy
A consumer economy describes an economy driven by consumer spending as a percent of its gross domestic product, as opposed to the other major components of GDP ....
.
United States
In 1929, consumer spending was 75% of the nation's economy. This grew to 83% in 1932, when business spending dropped. Consumer spending dropped to about 50% during World War IIWorld War II
World War II, or the Second World War , was a global conflict lasting from 1939 to 1945, involving most of the world's nations—including all of the great powers—eventually forming two opposing military alliances: the Allies and the Axis...
due to large expenditures by the government and lack of consumer products. It has risen since 1983 to about 70%, as the result of relaxed consumer credit. Spending dropped in 2008 as the result of consumer fears about the economy. Consumers saved instead of spending.
In the United States, the published Consumer Spending figure includes three broad categories of personal spending.
- Durable goods: motor vehicles and parts, furnishings and durable household equipment, recreational goods and vehicles, and other durable goods.
- Nondurable goods: food and beverages purchased for off-premises consumption, clothing and footwear, gasoline and other energy goods, and other nondurable goods.
- Services: housing and utilities, health care, transportation services, recreation services, food services and accommodations, financial services and insurance, and other services.