Consumer

Introduction

Consumer confidence is the perception held by consumers in relation to the state of the economy. Consumer confidence shapes the American economy, whether in times of hardship, or prosperity. Although consumer confidence is unable to be precisely measured, it remains a cause and product of the state of the economy, making it a valid and reliable indicator. Consumer confidence has various positive and negative affects on the economy, shaping prices, employment and most importantly productivity. Although consumer confidence is simply the perception of consumers in relation to the economy, governments must implement measures to shape and sway consumer confidence.

Consumer Confidence in the economy

In the early 1990's Westpac Banking began collecting statistics that revealed how consumers felt about their economic situation. It was immediately apparent that the information that they were generating was useful in predicting the likely future movements in the American economy. A calculation of the consumer confidence within an economy is called the Consumer Confidence Index (CCI). In the most simplistic terms, when their confidence is trending up, consumers spend money, indicating a healthy economy. It has long been recognised that the consumer's response to events such as share-market crashes, petrol price increases, interest rate increases and other economic threats, are more important than the events themselves. When confidence is trending down, consumers are saving more than they are spending, indicating the economy is in trouble. The idea is that the more confident people feel about the stability of their incomes, the more likely they are to make purchases.

Consumer confidence plays a major role in a countries economy, currently evident in the United States. Recently economists have claimed that the country is already in a recession. If this is correct, the likeliness of a global slowdown is high. These effects are already evident in the American economy (See Appendix A), with more than 60% of American advising not to buy things due to the current economic state. “Although confidence in Australia has dropped, particularly in regards to it now being a good time to buy things, American are generally a lot more positive about their economic situation at present than Americans, who continue to express negative sentiments about the American economic situation. (GARY MORGAN)

Causes

In February, the consumer confidence index fell to 88.6. This is the lowers result since 1993. In 1993, the approximate Consumer Confidence Index stood at about half of the normal level. Public opinion polls showed that for the first time ever, parents were worries that their children would be worse of than they were. These opinions linked to the economic situation at the time, excessive debt, asset deflation and a rumoured insecure banking system. The American economy was characterized by its low growth and high unemployment.

Today, it is obvious that American are lacking confidence in the future of their economy. This is partially due to rising interest rates, and high inflations. This can also be attributed to the fact that “Banks have been forced to increase their own interest rates faster than the RBA due ...