Written By: Julia Crosby
Consumer’s spending started decreasing at the end of May, after a record high of five months. Chairman and Chief Executive Officer of Safeway Inc., Steve Burd, stated “customers remain price-conscious, in part because confidence is yet to rebound to pre-recession levels and shoppers are trying to be very careful with how they spend their dollars”. Although consumer’s spending has decreased, a Commerce Department report declares that more Americans signed contracts to purchase previously owned homes than forecasted in the month of March. As it was declared in January that payroll tax in the United States would increase, it started to have a detrimental effect on the economy because the implementation of the payroll tax led consumers to reduce their spending. Consumer spending makes up about 70 percent of the U.S. economy, without consumer spending the United States’ economy would experience a catastrophic event. Millan Mulraine, an economist for TD Securities USA LLC in New York stated, “Consumers won’t be able to sustain the current pace if income growth continues to disappoint”. The National Association of Realtors stated that previously owned home sales increased by 1.5 percent in the month of March after a 1 percent decline.
The currently low mortgage rates and the unemployment rate decreasing, is making the housing market stronger. As property values start increasing more property owners will be put their properties on the market creating needed supply. Stocks have climbed on the Standard Poor’s 500 Index for the six month straight, which has caused central banks to maintain the stimulus plan. The Commerce Department’s Report also stated that Americans’ incomes increased by .2 percent in March after having a significant increase in February at 1.1 percent. According to a Bloomberg survey taken April 5 to April 9, economists in this survey predicted “the lagged effect from a two percentage-point jump in the payroll tax at the start of 2013, and $85 billion in automatic budget cuts that began March 1, will cause the mean economic growth to weaken to a 1.5 percent pace this quarter from 2.5 percent. The economy will then accelerate to an average 2.4 percent rate in the last six months of the year”. There is hope for the economy to rally in the last six months of the year, as economists predicted.
By: Shobhana Chandra