Three cheers for consumers

Posted by: Paul Donovan

25 Oct 2019
  • The world economy slowed this year. Trade uncertainty slowed corporate investment. Trade taxes hit investment goods more than consumer goods. Lower interest rates do not work very well in the face of the new trade risks.
  • Investment is not the main part of the economy. Consumers dominate the world's advanced countries. Consumers represent around two thirds of economic activity (more in the US, where consumer spending is a national pastime). There is little evidence that the slowdown in investment is hurting consumers.
  • Consumer spending on more expensive items—durable goods—is a useful way of seeing how consumers view the world. If people are happy with the way things are going, they will happily buy another flat screen television or a washing machine. If consumers are not happy, they will wait to see how things turn out.
  • Consumers in the US and Europe seem happy to spend on high priced goods for now. Spending on home appliances and other big ticket items is growing strongly. Consumers seem optimistic about the future. Of course, it is important to watch global labor markets, to make sure that negative investment spending does not lead to cuts in employment. But for now, the consumer is signaling stability. 

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