In theory times should be good for those in employment. While the recession has receded after the Collateralized Debt Obligation (CDO) crisis caused such worldwide devastation it seems there are still some real problems when it comes to market growth. Real estate issues have yet to be fully resolved in many places. The rapid growth that people enjoyed before the CDO issues arose is unlikely ever to return. It highlights the fact that even those people who give a great deal of thought into their finances cannot be certain that things will go as they wish. Few saw the CDO crisis coming; most certainly people whose expertise was supposed to be finance.
Companies need to look at their business plans and forecast cash flows on a regular basis and revise them as circumstances change. The same thing applies to families. If the economic environment changes completely then they need to recognize that fact and adapt to the change. It seems that even though things are much better than they were a few years ago, consumer spending in some areas is poor; there is still a good deal of caution even though prices continue to be depressed as sellers look for significant growth.
It seems that consumers are relying on their own experiences to decide on spending rather than being seduced by figures released by government. There is a great deal of cynicism about the picture that national statistics show about the performance of the economy. It is not that people think they are engineered for political purposes. It is just that if figures suggest that everything is improving they are not taken at face value if local experience seems to be at odds with the figures.
In the USA the Obama Administration is looking for a target inflation rate of 2% on the Consumer Price Index. Officials are saying that this figure is not being reached even though there have been significant increases in the cost of healthcare, mobile phones and cable services. While the price of oil has fallen other prices seem to be rising. There may be a time lag between prices rising and their making an impact on the figures but it does lead to public confusion.
As prices seem to be increasing average income has fallen. It remains below the figure of 2007, just before the CDO Crash came. There are commentators who suggest it is actually closer to the figures in the mid 1990s. Is it any wonder that some sectors are finding it extremely difficult to generate sales?
People now seem to fear debt. The fact is that interest rates remain low and financial institutions are prepared to offer realistic loans to those who can make out a convincing case for approval. Perhaps the public is missing a trick when finance is available, even to clear away existing debt and reduce monthly repayments?
The Bureau of Economic Analysis is saying that the U.S. economy grew by 5.0% during the third quarter of 2014 but that does not correspond with what ordinary people are experiencing. The result is a reduction in spending on non essentials. The products that are clearly suffering are clothing, furniture, general leisure activities like restaurants, movies and concerts and surprisingly services like child care. Apparent luxury goods like boats and motor homes, cars new and used are struggling to keep their current level of sales. In contrast spending on food, energy, accommodation, rental rather than purchase and transport has increased.
Consumer spending is the way to economic recovery but there is a shift in how money is being spent. The economy is evolving in a way that few would have predicted. The yardstick for consumer spending used to depend on secure employment and little else. It seems that the memory of the CDO Crash is still fresh in the mind and the result is that consumers in the USA are reluctant to spend in the same way as they were happy to do in the early years of the Century.