Americans are changing their spending behavior. The impact of this change could also result in a deflationary economy. That is a situation where prices are dropping and everyone is waiting for the next drop in prices before making a purchase. It’s great for consumers but businesses are forced to carry reduced inventories because they fear sales will not be sufficient to provide a return on their investment.
The ongoing recession could impact our country in a way that few people have discussed. When so many people do not have jobs or have taken lower paying jobs a level of depression begins to set in. Stores have less to sell and people have less to spend. It is a cycle that is difficult to break.
The real unemployment is totaling about 17%. That is the combination of the reported unemployment of 9.8% added to those working reduced hours, those working at jobs paying less than their historical pay rate, and those that have given up searching for a job. All of those people have reduced their spending. The impact is seen in retail sales. Most retail businesses are reporting losses. A walk through the malls tells the story with many vacancies and too few shoppers. The Christmas selling season is expected to be slow.
For many of us our homes were our piggy banks. With housing prices dropping by 30% to 40% and banks asking for higher credit card interest the outcome is obvious.
The stock market is up based on higher profits. It is a temporary condition. Those profits are the result of reduced labor costs not increased demand. This economy is based on consumers buying. We the people have run out of money.
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