Wednesday, December 23, 2015

Incomes, Attitudes and Spending Rise Over the Holidays

The Commerce Department reported incomes have risen for the 8th month straight and consumer spending increased significantly in November. To brighten the holiday spirit a U of M report index showed that consumer confidence rose to 92.6. Good news for holiday shopping and the economy.

Approximately 2/3rds of the economy is based on consumer spending. Increases in income, spending and confidence are related and have a direct impact on the economy. As these factors the economy speeds up and further supports more income, spending and confidence.

This is one reason why economies rise in periods and then decline in periods. Unless shocking news and events change people's assumptions economies grow and fall in relative cycles and patterns. It corresponds in many ways to public perception and the time it takes to change that perception.

Pay people more, they feel better and spend more. This relates to way we see our futures and the need to hold tight to money or enjoy life. Until household financial slack is spent this works pretty good as a strategy.

The problem is that wages don't work this way forever. You cant raise wages in a bubble without considering the long-term competitiveness of the country. Wages can only be justified if the business environment allows for increased profits, skill sets, productivity, and opportunities. Growing economies that attract new opportunities can afford wage increase but long-term fundamentals must always be kept in mind. When one outstrips the other you got new problems.

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