Definition: The trends in consumer spending dictate what the economy will produce. That's because 70% of the U.S. economy is driven by consumer spending. Many analysts looks towards the Consumer Confidence Index to predict how likely it is consumers will spend. That's because people are more likely to shop when they feel confident about their ability to get a better paying job. Consumer confidence has been trending up since July 2007.
An important long-term consumer trend is the demand for goods and services at an ever cheaper price. This is thanks to technology making consumer electronics ever-cheaper, and low-wage manufacturing in Asia. Calls to eliminate NAFTA and other free trade agreements have been ignored, so that manufacturers can't afford to hire U.S. workers and stay in business.
The recession accelerated this trend. In the Shift to Thrift, consumers shopped at Walmart, searching for the lowest prices -- period. They were often pleasantly surprised when some cheaper good or service was just as good as what they bought before the recession. They were willing to travel further to achieve this value.
However, as the economy began to improve, some higher-priced goods started to sell again -- as long as they provided value for the dollar. By the 2010 holiday shopping season, jewelry and department stores started to rebound, while stores like Walmart saw a slight decline. Value had become more important to consumers than price.
Consumer spending is dependent on two things: wages and debt. Since 2000, wages have remained flat. This is partly because jobs have been outsourced to cheaper labor in China and India.It's also because new technology has made workers more productive, requiring fewer of them.
However, Americans still wanted to retain their standard of living. During the housing boom, they used their home equity like an ATM. They also ran up credit card debt. The subprime mortgage crisis combined with credit card debt restrictions curtailed debt as a source of funds. High unemployment cut back on wages. As a result, consumer spending is likely to remain fairly flat for the forseeable future. (Article updated March 24, 2011)