The Consumer's Role in the Economy

There are a number of factors affecting the strength of a nation's economy such as government spending, imports and exports and the value of their currency. However, one of the biggest factors that affect the economy is the consumer spending, which is usually the case in most developed countries.

 

According to the statistics from the Federal Reserve, the spending of American consumers account for over two-thirds of the nation's Gross Domestic Product (GDP), which is the measure to determine the economy's growth. Although the consumer's expenditures has not always been a dominant factor in driving the economy, it has been responsible for over 50 percent of the economic activity ever since the post second world war era.

 

However, in the recent decades the role of the consumer's expenditure has taken a notable turn. According to eh US Bureau of Economic Analysis, consumer spending made up 59 percent of the total GDP in 1966. It then increased to 64 percent by 1991 and today it represents almost 70 percent of the GDP.If you want to learn more about economics, you can visit https://en.wikipedia.org/wiki/Economics#Macroeconomics.

 

Market analysts and economizate keep track on the trends of consumer activity. If they see that consumer spending is consistently strong, it may indicate that most of the citizens have a high level of confidence in the direction of their economy. However, this is not the only thing that they keep track of. They also keep track of the types of spending the consumers make as it can determine how high their confidence is about the economy at any given time. Say for example, more people are putting their money in necessities like food, clothing, water and shelter instead of luxury items such as expensive jewelry and cars, it may mean that they do not have that strong of a confidence towards the economy.

 

The rate at which the consumers spend can also affect the monetary policy, meaning if the spending is lagging, the governing body can decide to reduce the interest rates or take other measures to help jump start the business and household spending. If consumers are spending too much of their money too quickly, then it can signal that inflation is looming in. The governing body may increase interest rates in order to control economic growth.

 

What to expect?

The economia is constantly changing and it is difficult to predict the future. However, if one thing is for sure that is the fact that economists and market analysts will continue to monitor the consumer spending trends to gauge where the economy will be headed.