Long Term Perspective

Typically, consumers increase spending in direct proportion to gains in disposable income. However, spending can also be boosted by "wealth effects" such as during the 1990s during periods of strong stock market gains or during the mid-2000s when the housing boom caused a surge in home equity.  Since 2006, a housing bust and since late 2007 a stock market correction have damped consumer spending.  Conditions worsened in 2008 and into 2009 – notably in the labor markets – and pushed consumer spending into negative territory—until cash-for-clunkers boosted spending in the third quarter of 2009. Consumers with jobs have become somewhat more optimistic.  Positive growth for spending continued into the fourth quarter of 2014.

 

 

Short Term Perspective

Real personal consumption growth in the third quarter improved to a 4.2 percent annualized increase, following a 3.2 percent boost in the prior quarter.  The latest increase was led by a 6.0 percent annualized rise in the durables component.  Nondurables advanced 3.8 percent while services gained 4.1 percent annualized.