U.S. Consumer Spending Up 0.1% in July
Seventy percent of the U. S gross Domestic Product is accounted for by consumer spending. Spending habits are affected by the people's income, and that is why a slight increase in people’s income would boost the spending and consequently affect the economic activities. From Sarah Potlock's report, the unexpected economic growth of 2.5% in the second quarter of the year 2013 can be attributed to heavy consumer spending. The annual economic growth rate is directly affected by consumer spending. Owing to the weak report on consumer growth, economists lowered their annual growth estimates. For instance, Macroeconomic Advisers and Barclays Economist lowered their estimates by 0.2 and 0.3 respectively to estimate the growth at 1.6%.
Consumer spending has been seen to affect the banking sector with Federal Reserve Bank officials facing a choice of paring back their bond purchases. Still in the banking sector, it is seen that employment report is major economic data to guide the Central bank. This is because consumer spending has been seen affect employment.
Even though people have long recovered from the economic recession that hit four years ago, it is evident that consumption habits have changed since with most doing it conservatively. This can be explained only by the consumer confidence on the economic stability. Once this confidence is shaken, even though the situation changes the highest number of consumers tends to save money or use it for paying outstanding debts. Another factor that could contribute to consumers caution is the threat of rising fuel prices as a result of unrest in the Middle East.
In conclusion, consumer decisions will not only satisfy their needs and wants but largely affect what goods and services are produced affecting the economic growth.