Why People Are Not Spending Their Money in the United States Economy
EducationWhy People Are Not Spending Their Money in the United States Economy
According to the Commerce Department spending in the United States has not risen for over three months. Why are people in the United States not shopping and spending their money in the economy?
Personal consumption expenditures which measures how fast people are spending their money in the United States economy rose at normal rates of .5% or 6% on an annualized basis in the months of February and March. But since March personal consumption rates have not risen at all as Americans have slowed their spending and shopping.
Personal Consumption Rates in 2010 by Month
February spending rose .5%
March spending rose .5%
April spending declined by -.1%
May spending rose by .1%
June spending was .0%
On an annual basis personal consumption levels have not risen at all from April through June. Clearly people are not spending their money at anything close to a normal rate or level. Americans are keeping their money in their wallets and not shopping but why?
The answer is simple - because money is worth more today than it was in the recent past going back a few years. When money appreciates in value people will slow their spending because no one wants to spend something that has or is gaining in value.
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Beginning in 2007 as a result of the Federal Reserve having withdrawn close to $750 billion dollars of money from the US economy banks in the United States started taking massive write-offs of loans. As the write-offs of loans continued less money was available in the economy so all remaining money appreciated in value. As money appreciated in value personal consumption rates plummeted as people refused to spend their money that has gained in buying power.
As long as money has appreciation people will continue to spend their money at lower personal consumption levels. It is human nature for people to act in their own best interest and when money has gained in value it is not in anyone's best interest to spend their money at accelerated rates.
Until money starts depreciating in value consumers in the United States economy will continue to spend their money at subdued personal consumption levels.
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Source:http://www.bea.gov/newsreleases/national/pi/pinewsrelease.htm