The chicken or the egg?
The economic numbers out this week seem to paint a pretty clear picture. Economic activity is picking up. A little. In the third quarter, there was probably some growth. But consumers are still saving instead of spending, and the job market continues to be bleak. So, what’s going to give?
If people don’t spend, then companies don’t hire. And if companies don’t hire, then people don’t have income to spend. It’s the classic chicken and egg conundrum.
The problem is that much of the recent spending was propped up by the myriad government programs, from unemployment benefits to cash for clunkers. And despite improvements in people’s sentiment about the economy there is little to suggest that a full-on consumer rebound lies around the corner…
Of course, in the long run cutting debt and spending is a good thing. It makes families more secure and creates a pool of capital that can be spent on investments or redeployed into the economy. But with consumer spending such a large part of economy activity, more austere households add to the pain of the recession.
I still see the austerity as an encouraging sign. And the fact that 80-90% of Americans have jobs… hopefully that’ll be enough to get the wheels of spending moving again, which will lead to more jobs. Some people who are saving money might also invest it in new businesses and jump start hiring that way.
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