Economic Uncertainty Causes Many Wary Consumers to Spend Less
By Oregon Tax News,
Persistent pessimism over the economy appears to be having a growing negative effect at the cash register as many consumers continue to scale back their spending. Bankrate.com recently reported that 40 percent of consumers spent less over the past two months—a figure that could signal trouble ahead, possibly even another recession.
Among other things, August auto sales were down .3 percent and clothing store sales fell .7 percent. Overall, retail sales were stagnant last month, despite the annual bump normally expected from back-to-school shopping. With the holidays quickly approaching, economists fear that the most recent economic data portends lower than expected consumer spending later this year.
Some of the spending decrease could be attributed to job losses or decreased earning power among many Americans. However, 37 percent of those earning $75,000 or more cut back spending, as well. This in part suggests that even consumers who have the ability to spend more freely are instead pinching pennies, resisting impulse buying, and shopping for bargains. That trend may mirror what’s happening among businesses, many of which could hire or expand but have chosen not to due to lack of confidence amid continuing economic uncertainty.
Experts cite lack of job security among the major reasons for depressed consumer spending, saying that the consistently high unemployment rate has “spooked” many consumers and left them feeling increasingly insecure about their financial future.
While the American economy is not officially in a recession—an economy must shrink for two straight quarters to qualify as “in a recession”—the International Monetary Fund recently downgraded its economic outlook for the U.S to a growth rate of 1.5 percent in 2011 and 1.8 percent in 2012. That anemic outlook along with major stock market fluctuations, stagnant employment numbers, possible fallout from the European Union debt crisis, and other recent economic data offer consumers little reason for optimism.
Interestingly, recent polls indicate that many American’s perceive the economy to be worse than it actually is, which likely encourages a more conservative approach to personal finances. According to a September USA Today/Gallup poll, eight in 10 Americans say the economy is already in a recession. Perhaps more ominously for consumer spending, six in 10 don’t think things will get better and may even get worse by this time next year.