|Consumer Spending on the Rise|
|Topic||Aggregate Demand/Aggregate Supply|
|Key Words||Consumer Spending and Sales Incentives|
|News Story||The largest component of aggregate demand in the U.S. economy is consumption spending. Thus, analysts keep a close eye on consumer confidence, spending patterns, and spending levels. June consumer spending was up by 0.8 percent, as many American households took advantage of "We'll give you the same price we give our employees" pricing by auto manufacturers. According to the U.S. Commerce Department, personal income also rose in June as further evidence of a growing economy. "The June gains in personal spending and income point to a pretty firm close to the second quarter, which puts the economy in a good position at the start of the third quarter. The underlying trend of growth is fairly solid," said senior economist Pierre Ellis of New York's Decision Economics.
Purchases of durable goods--those products expected to last three years or more--increased by 3.3 percent in June, due mostly to the increased sales brought on by General Motors's introduction of "employee pricing." Other auto manufacturers were quick to join the bandwagon by offering employee pricing on their cars as well. Ford Motor Company extended employee discount pricing to the car-buying public and posted its first year-over-year sales gain in 13 months. "The employee discount programs have been a huge success," said RBS Greenwich Capital chief economist Stephen Stanley. "It appears that unit auto sales for July will exceed the 20 million (annual rate) mark for only the third time in history."
These discount programs are squeezing automaker profit margins, but are serving to move out unsold 2005 models. Factories now appear to be increasing production after strong demand helped them cut inventories in the second quarter. "The manufacturing sector has worked through its inventory overhang and it's receiving a good stream of orders," said Lynn Reaser, chief economist at Banc of America Capital Management.
|Source||Rueters, "Economic Indicators for June Show U.S. on Sound Footing," The New York Times Online, August 3, 2005.|
Return to the Aggregate Demand /
Aggregate Supply Index
©2005 South-Western College Publishing. All Rights Reserved webmaster | DISCLAIMER