Thrifty Shoppers Stifle Economic Recovery

Thrifty shoppers stifle economic recovery

Businesses are careful about hiring due to decreased spending by American consumers.

Shoppers will need to be less thrifty if the U.S. wants unemployment rates to go down and economic turnaround to be sustained. However, data released Tuesday reflected just the opposite of the needed spending spike, with Americans unwilling to increase spending even as they purchase more products including shampoos and razors.

The latest unemployment rate stands at 9.5 percent. The next available data will be released this Friday.

"Once the unemployment rate starts coming down in a significant way, consumers will feel more confident and start spending. But businesses are reluctant to step up hiring until they see stronger demand," said Chris G. Christopher, senior economist at IHS Global Insight. "It's a Catch-22 situation."

A positive signal that shoppers are still willing to buy items with high price tags, General Motors reported a higher sales for July, while Procter & Gamble, makers of diapers and soaps, announced that their revenue grew 5 percent in the last quarter.

But other industry and government data were not that optimistic.

The Commerce Department said that factory production declined for the second consecutive month following nine months of increases. Also, home buyers in June dropped their lowest numbers since 2001 according to the National Association of Realtors.

A revealing piece of data about consumer spending from the Commerce Department’s personal income and spending report for June says that the annualized rate climbed to its highest level in almost a year to 6.4 percent. That represents a three-fold increase of the rate since the start of the recession in 2007.

Posted by James Fried on Thursday August 05 2010, 11:01 AM EST. All trademarks acknowledged. Filed under Featured News, Finance. Comments and Trackbacks closed. Follow responses: RSS 2.0