Economics Essay, Research Paper
A good reading on the outlook for the U.S. economy can be had by closely
watching indicators such as consumer confidence, unemployment, and corporate
downsizing. The chances of an U.S. recession will rise and fall with these measures. For
the moment, each is holding their own. The national state of mind has reflected the
economy around us. With the economy booming as a whole, so has the individual’s view
of the economy. The individual is taking advantage of the good times, thus fueling the
economy to greater heights. Given the possible split second movements in financial
transactions and information, however, this could change literally overnight.
With the economy in good shape, a few indicators can easily show why. The
housing market is rising considerably as more and more homes are being bought. With
low interest rates more homes are being built, proving that the American people have
money and are willing to spend it. Unemployment is considerably down since President
Clinton took office. After the period of recession in late 1990, unemployment steadily
rose to about 10 million in late 1992. Since then, the rapid decline has brought
unemployment to around 6 million and has been a direct indicator toward the strong
economy (Gibson). While unemployment has declined over the past 6 years, the civilian
labor force has increased considerably since the recession. In 1992, the labor force was
hovering around 127 million, whereas now we are at about 138 million (Gibson). Because
of low unemployment and a large labor force the economy is strong.
Consumer confidence is another major economic indicator. By looking at the
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consumer confidence, a general understanding of the individual’s view can be found. With
much controversy over whether or not the economy will falter this holiday season, the
Consumer Confidence Reports (C.C.R.) give a good representation of how the economy
will fare. While some see the economy faltering in December, the reports aren’t out (it’s
only December 5). Chain store sales remain solid heading into the heart of the holiday
season. November’s sales of $40.5 billion represents an increase of 4.4% from this time
last year. Drug stores and wholesale clubs are posting double-digit gains in sales, with
apparel, building supply, discount, and furniture chain stores also registering solid growth.
Electronic stores have leveled out, after reporting an average growth of 7% the past 3
months (McIntyre). The Conference Board’s annual holiday spending survey, released last
week, projects record spending for Christmas gifts this year. American families will spend
an average of nearly $500 each on holiday gifts, up from last year’s $465. Retail sales are
expected to climb by 6-7%, moving into the $50 billion range (McIntyre). These statistics should deny any views on declining consumer confidence. November’s sales were
certainly helped by the stock market’s strong rally, creation of more wealth, and the
ensuing rebound in consumer confidence. With the Dow near record highs again,
households, who have enjoyed several years of steady wealth and income gains, are
confident enough to continue spending. Although the pace of job growth has dropped and
layoff announcements are mounting, labor markets remain extremely tight, with strong
increases in wage and salary income(McIntyre).
Consumer confidence rebounded from a previous 4 month decline with a jump in
November. The November consumer confidence readings show that nearly 16% of Rappaport 3
surveyed families look for business conditions to improve over the next six months,
up from less than 15% in October. Less than 15% expect job opportunities
to worsen compared with more than 18% in October. Consumers also are more
upbeat about their personal fortunes, with nearly 27% looking for their families’ income to
rise over the next six months, against less than 24% in October (Koropeckyj). Although it
increased, it still remains far below the values reached earlier in the year. The
contradictory opinions collide when certain pessimistic views are held by the public, yet
spending is up, as is the C.C.R.. Only 40% of households believe that jobs are plentiful
though they are historically high. Households are wary about the future due to the
increased layoffs and the continued global crisis, which has begun to impact the domestic
economy (Koropeckyj). Although they are weary, low interest rates and low price
inflation are maintaining buying plans, with buying opportunity for houses and automobiles
being high. The decline in confidence may have something to do with the households that
experienced a decline in the market for the first time and were alarmed by it. One of the
keys to the strong economy is the fact that wages are increasing, while inflation isn’t
increasing much. With interest rates low, it has become increasingly hard not to feel
confident borrowing money. The national personal saving rate has decreased dramatically
over the past 6 years to just over .2% (BEA). This proves that consumers are not saving
their money and are fueling the economy through their purchases.
Downsizing is one of the reasons that Americans feel the economy is going to
slump. The low inflation environment is making it difficult for many domestic companies
to raise prices. With inflation at 2% at the consumer level and close to zero at the Rappaport 4
producer level, it’s not surprising that prices aren’t climbing. At the same time, wages are rising and employment costs are up nearly 4%. The result is a developing squeeze on
profits (Investor’s Monthly). Companies are finding that productivity is not increasing as the hours of their workers are increasing. The law of diminishing returns takes place as
overlapping and non-essential jobs are eliminated. These lost jobs, along with jobs lost
due to technological advancements, are forced to look for work elsewhere. More often
than not, these lost jobs are from the manufacturing companies that are the backbone of
our economy. With that, some people are wary of the economies future.
Although we have a strong economy, many are pessimistic of job security and the
rate of downsizing. For many the future is uncertain because it is unknown. The
optimism is present because of low interest rates and low inflation, combined with higher
pay which allows more spending and more borrowing. With this, more cars and homes
are being purchases which is fueling the economy even more. All of this is like dust in the
wind, because turbulence in the stock market, an increase in interest rates, higher inflation,
or lower salaries will cripple the economy. It’s only a matter of time before some of these
indicators shift for the worst, and consumer confidence is lost.
Rappaport 5 BIBLIOGRAPHY
Bureau of Economic Analysis. Personal Saving Rate (Chart). Internet.
Gibson, Sharon. “Labor Statistics” Bureau of Labor Statistics. 4 December 1998. Internet.
Koropeckyj, Sophia. “Consumer Confidence”. Dismal Scientist. 24 November 1998, Dismal Scientist Online. Internet.
Market Outlook: “Market’s Downside Risk Has Been Reduced”. Investor’s Monthly November 1998: 8.
McIntyre, Kevin. “Chain Store Sales”. Dismal Scientist 3 December 1998, Dismal Scientist Online. Internet.