Economic Perspective: Are Consumers Doing Their Part?

Economist Mike Walden

MARY WALDEN:

“Today’s program asks if consumers are doing their part. Mike, consumer spending accounts for 70 percent of total economic activity in the country, but with concerns about the relatively slow rate of growth in the economy, is consumer spending part of the problem or part of the solution?”

MIKE WALDEN:

“Well at this point it’s part of the problem because just like most of the big indicators consumers have not been spending rates they were doing prior to the recession. Prior to the Recession, consumer spending was rising year over year at about four percent. Right now, and really since the end of the Recession, consumer spending has been rising year over year at about two percent. So it’s been cut in half.”

“And since consumer spending accounts for 70 percent of the total economic activity that’s the prime reason why the economy is growing, but it’s growing at a slow rate. This consumer spending is not rising like it used to. Now the big question. Why?”

“Well a lot of reasons. Cautious millennials who have graduated college with a big student debt. They’ve got memories of over-spending, at least by their parents before the last Recession. Many of those millennials have become very, very cautious, very, very frugal with their money.”

“Banks have tightened lending standards. Certainly compared to pre-recession. It’s generally harder to get a loan. For example, probably to get a big ticket item like a car, truck or a home.”

“Aging populations. We are an aging society. Studies show that older people tend to spend less than they did when they were younger.”

“And I think, finally, general uncertainty about the economy. This recovery from the recession is now going into its seventh year. Typically in the past, we’ve seen a recession begin by now so many are thinking, ‘We need to be cautious. Not overextend ourselves like we did prior to the last recession. So this is a very important indicator of where the economy going so keep track of what consumers are doing with their money and how fast they’re spending it.”

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