NCPA - National Center for Policy Analysis

Why American Consumers Aren't Slowing Spending

September 3, 2002

A new spending index produced by Deloitte Research shows that Americans are continuing to spend because they are wallowing in cash. Economists have been hard-pressed to explain why consumers are spending at hearty rates despite unemployment jitters and stock market losses. Whatever the reasons, their actions have been credited with sustaining the economy at a time when businesses have cut back on capital outlays.

Here are some of the factors propelling consumers to buy:

  • Zero percent financing deals on cars convinced many Americans that the time had arrived to trade up.
  • Hourly earnings have held up well during the past two years of economic turbulence -- up 2 percent from a year ago, after adjusting for inflation.
  • Tax burdens, another component of the index, are down by about 10 percent from a year ago, on average, after rising through much of the 1990s.
  • The index of spending is showing its largest gains since the economic recovery of the early 1980s -- pointing to 6 percent year-to-year increases in spending.

The economists at Deloitte are predicting a "pretty healthy" holiday spending season.

Source: Jon E. Hilsenrath, "New Index Shows Why Americans Keep Spending," Wall Street Journal, September 3, 2002.

 

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