American consumers continue to spend

September 17, 2002

Free Market Foundation

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 high 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.

For more on the Economy http://www.ncpa.org/iss/eco/

FMF Policy Bulletin\10 September 2002