Tuesday, August 30, 2011

August: A Month of Consumer Woes

There have no doubt been issues with our economy for years now, but it seems as though it has taken a turn for the worse yet again. In fact, Americans are now more pessimistic about the economy's current state than they were in July. The Consumer Confidence Index for August, put out by the Conference Board, a New York research business, fell from an already low 59.2 (July's reading) to an even lower 44.5. A reading of 90 or so represents a healthy economy, so a 44.5 is somewhat terrifying. If Americans don't believe in their own economy, who will?

The Consumer Confidence Index measures the attitude held by consumers on jobs and spending in the short term. Consumer spending makes up approximately two thirds of the US economy which makes me wonder: Will the economy ever get better? With all the bad things happening to the US right now (Standard & Poor's downgrade, Irene, the 9.1% unemployment rate, etc.) I can't help but be just as pessimistic as nearly everyone else. This latest report is likely to spread even more fear to the people, causing them to spend and invest less. This will in turn affect the fourth primary factor of production: entrepreneurship. With less trust in the security of the economy comes less risk taking (i.e. entrepreneurship). With one of the primary factors of production stunted, how can the economy be expected to change as much as needed?

While I would love to be hopeful about the economy, I'm just not so sure at the moment. With the lowered Standard & Poor's rating and the lowered Consumer Confidence Index, I simply don't have as much confidence in the economy as I would like. Who knows, maybe the lowered score is simply a reflection of people overreacting. I guess only time will tell if the economy has the strength required to pull itself back up.

4 comments:

vinhdoan said...

I definitely agree that it is difficult to have confidence in a market that has been hit by so many negative factors. But, I think a consolidation is the fact that America has prospered at times of adversity in the past. During WW2 the global economy was basically crumbling while America was enjoying a revitalization in the economy. Now i know that war good production was the main factor that boosted our wealth, but i think that the same principles apply today. The only difference is that the power lies in the consumers and their trust in the economy

AliceZheng said...
This comment has been removed by the author.
AliceZheng said...

I too agree with Vinh. I think, since the economy is lagging so much, there is a dire need to find a new demand to meet through new businesses. The 9.1 unemployment rate is very alarming, and can only mean that more and more will be joing them as the consumer morale is low. The auto industry basically transformed American economy. Do we need a new good of that apititude to turn us around? I think so; it would also help the 9.1% unemployment rate.

JeremyHardy said...

I love how you connected this issue to the factors of production; I think another factor of production that could also be affected is capital, particularly financial capital. In one of the behavioral economics articles we read, we saw how much consumers care about having more money than their coworkers, the other members of their country club golf foursome, and even the guy next door. Given the detrimental state of our current national economy, I believe such consumers will be less willing to take the risk of investing in companies and potentially losing their elevated position in the financial hierarchy among their peers. You are definitely correct when you say our country needs entrepreneurship and responsibility, both among business leaders and consumers.