The US economy is expected to moderate its growth in the third quarter of the 2021 US economy. Consumer spending, which accounts for about seventy percent of the US gross domestic product (GDP), has been a key driver behind the US economy over the past two decades. Consumer Spending Growth has been a key indicator of the US economic recovery since the end of the recession in 2021. However, gradual economic growth is starting to pick up from the lowest rates of growth in the past decade. The pickup in consumer spending has been helped by some positive indicators such as job gains, rising home equity, and improvement in the housing market.
The slowdown in consumer spending growth is being led by lower credit card debt, which makes it harder for consumers to make purchases. Consumer confidence has also picked up after being impacted by the global financial crisis in the third quarter of the year. Consumer confidence is a key indicator of the health of the US economy. The third quarter marked a period of lower consumer spending due to slower consumer confidence and higher mortgage rates. Homebuyers have been slower to react to the weaker home equity balance sheet as compared to the first two quarters of the year.
A report released on Friday showed that consumer sentiment has picked up in the third quarter of the US economy. The survey was taken between November and December and showed a slight increase in consumer optimism. Consumer Confidence Index (CEI) rose to its highest level since the second week of the last November before dipping slightly in the third quarter. This is the first time that a survey of consumer sentiment has shown an upward trend for the past twelve months.
The report is positive for the US economy, but it also showed that consumers are not necessarily pulling their weight in the economy. Consumers are not saving as much money as they were in the past due to tighter credit card payments and rising interest rates. The weak economy has led to higher unemployment figures across the board including higher levels for prime working age consumers such as 25 year-olds with at least a bachelor's degree. Consumer confidence will need to be helped by higher interest rates and a more aggressive approach by central banks to reducing their massive debts.
One possible sign of consumer confidence improving would be a pick up in retail sales. An index of consumer sales increased by just three percent in the third quarter of the year. While this is below the market's bottom, the increase is encouraging to economists. There are signs that consumers are increasing their purchases of durable goods such as automobiles and household appliances. With this increase in durable goods, companies would be able to raise their pricing for basic items such as food, clothing and shelter.
Higher consumer confidence could also lead to more robust spending in the US economy. Consumer attitudes towards major purchases have remained consistent over the past few years. In January of this year, consumers are expected to begin making plans to upgrade existing appliances, to buy new items such as beds and TVs, and to plan for major purchases such as a home. A report from The Federal Reserve Bank of America showed that consumer sentiment was soft and remained low over the Christmas period. Consumer sentiment is the key to any healthy recovery. If consumers feel good about the state of the economy than they spend and spend some more, and this leads to an economy growing.
Consumer confidence indicators are likely to rise if the unemployment rate continues to remain high, unemployment benefits are increased and wages rise. Consumer confidence indicators are also likely to improve further if the Bank of America increases its interest rates. Historically, a time period of six months after an interest rate hike sees a significant amount of consumer confidence effect. If there is a hike by the Fed, then consumer confidence should begin to rise immediately, though how fast the improvement happens is unpredictable.
The third quarter of this year was a record setting hot streak for consumer confidence. It is important to note that this does not necessarily translate into increased spending. One indicator that would indicate greater consumer confidence is job gains. If there are more job gains than lost jobs, then that would be good news. Historically, job gains lead to consumer confidence.
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