Where we stand
Beware the “all important” consumer
Given the constant attention paid by many economic commentators, most people tend to believe that the “consumer” is the most important part of the economic puzzle. Given consumer spending tends to account for 50-70% of the economic growth of most developed countries, this seems to make some sense at least on the surface.
Given this importance there are a range of “measures’ dedicated to this very issue with the most notable the “consumer sentiment” survey. Whilst there are a range of approaches to such surveys, these essentially boil down to asking a range of people “how they feel” at a particular point in time. Anyone who has posed this question to an adolescent boy or girl, small child or even life partner (male or female!) will appreciate the response may vary somewhat from the truly scientifically measureable. Statistically robust perhaps, but not something you want to bet the farm on!
The graph below shows consumer sentiment over the years
Whilst there is no doubt some correlation between consumers feeling bad and recessions, this is a little short of an accurate yardstick, and possible a reactive measure at best.
Perhaps the more accurate measure then is how they act, after all don’t actions speak louder than words? After saying you feel bad may well be followed by some old fashioned “retail therapy”. The chart below shows actual consumer spending.
So if consumers never contribute to recessions, what does cause them and can they be predicted?
Next month we’ll look at how government and business spending impacts economic growth and see if there is a better answer there.
CEO, Financial Adviser
Analysing what can seem to be like complex issues, Matt is effective in using analogies to better explain scenarios and truths to the rest of us. This is what Matt enjoys – educating clients on the truths and debunking the commonly held (wrong) view.