RebelCapitalist: Financial Information for the Rest of Us

Bottomline: Consumer Spending

Nov 05, 2009 | By: Mr_Blue | Tags: economy, consumer spending

Our economy depends on consumer spending. This is the cold hard fact. Consumer spending makes up 70% of our economy and until consumer spending returns we will not see an economic recovery. Policy makers are doing nothing to change this glaring imbalance in our economy. Strong economies are balanced - they don’t rely on economic growth from only one sector. Will we ever learn this or do something about it?

Here is reality when it comes to consumer spending:

And here is growth (or lack of growth) in consumer spending:

Our problem in a nutshell is that we rely on consumer spending which relies on us to be employed. But that’s not enough because our wages have been stagnate for a while and so what happens is that we use debt - such as credit cards and home mortgages to make up the lack of wage growth and to finance our consumption. Great economy?

Our policy makers in Washington, especially the Obama Administration, have done nothing to change this huge imbalance. Instead, the answer has been to pump hundreds of billions of dollars back into the housing market and trillions into the financial sector. They are fighting to get back to the status quo of the pre-crisis years but unfortunately for all of us, “that ship has sailed.”

It’s time to transform our economy. One that is more balanced and yes, that means a stronger manufacturing sector. Angela Merkel, Chancellor of Germany, when asked why Germany hadn’t experienced such a deep recession she responded: “because we still make stuff.” Yeap and we don’t. We just consume.

Good luck.