By: Dr. Mike Campbell
The US economy is the world’s largest and therefore things that affect it tend to have knock-on effects in other economies. However, whilst international trade is clearly vital for America, its greatest customer base is at home. Some 70% of total American output comes from the activities of American consumers, so it is easy to see why consumer spending trends are scrutinised carefully by financial analysts.
Figures just released show that consumer spending in the USA has risen for the fifth consecutive month. Data for November show that consumer spending rose by 0.4% over the level seen in October whilst the income of American families rose by 0.3%.
Whilst the rise in consumer spending is encouraging, the rate of increase (from a low base) remains disappointing. Demand drives the employment cycle, so if consumer demand is subdued, the prospects for new jobs remain bleak. The other side of this coin is that if consumers are afraid that their own jobs are insecure, they will try to cut back on spending to preserve whatever cash they have to tide them over whilst they are looking for a new job. This, of course, suppresses demand.
New data shows that the sale of new homes has risen by 5.5% in November; again, whilst this is good news, it must be set in context. The November data represents an annualised new house sales figure of 290000, but this figure was 20% down on comparable data for 2009 (which was heavily subdued compared to pre-crisis levels).
The US economy is moving in the right direction and talk that it may slump back into contraction has faded, but it is clear that the process of resuming “business as normal” at the levels enjoyed before the global financial crisis struck will still take many months to achieve.