Consumer spending

Consumer spending, consumption, or consumption expenditure is the acquisition of goods and services by individuals or families. It is the largest part of aggregate demand at the macroeconomic level. There are two components of consumer spending: induced consumption (which is affected by the level of income) and autonomous consumption (which is not).

Macroeconomic factors

Taxes

Taxes are a tool in the adjustment of the economy. Tax policies designed by governments affect consumer groups, net consumer spending and consumer confidence. Economists expect tax manipulation to increase or decrease consumer spending, though the precise impact of specific manipulations are often the subject of controversy.

Underlying tax manipulation as a stimulant or suppression of consumer spending is an equation for Gross Domestic Product (GDP). The equation is GDP = C + I + G + NX, where C is private consumption, I is private investment, G is government and NX is the net of exports minus imports. Increases in government spending create demand and economic expansion. However, government spending increases translates to tax increases or deficit spending. This creates a potential negative impact on private consumption, investment, and/or the balance of trade.[1]

Consumer sentiment

Consumer sentiment is the general attitude of toward the economy and the health of the fiscal markets, and they are a strong constituent of consumer spending. Sentiments have a powerful ability to cause fluctuations in the economy, because if the attitude of the consumer regarding the state of the economy is bad, then they will be reluctant to spend. Therefore, sentiments prove to be a powerful predictor of the economy, because when people have faith in the economy or in what they believe will soon occur, they will spend and invest in confidence. However sentiments do not always affect the spending habits of some people as much as they do for others. For example, some households set their spending strictly off of their income, so that their income closely equals, or nearly equals their consumption (including savings). Others rely on their sentiments to dictate how they spend their income and such.

Government economic stimulus

In times of economic trouble or uncertainty, the government often tries to rectify the issue by distributing economic stimuli, often in the form of rebates or checks. However such techniques have failed in the past for several reasons. As was discussed earlier, temporary financial reprieve rarely succeeds because people do not often like rapidly shifting their spending habits. Also, people are many times intelligent enough to realize that economic stimulus packages are due to economic downturns, and therefore they are even more reluctant to spend them. Instead they put them into savings, which can potentially also help spur the economy. By putting money into savings, banks profit and are able to decrease the interest rates, which then encourage others to save less and promote future spending.

Fuel

When fuel supplies are disrupted, the demand for goods that are dependent on fuel, like motor vehicles and machinery, may decrease. Disruption in energy supplies creates uncertainty regarding availability and upcoming prices of these supplies. Often, consumers will not purchase energy-dependent products until they can be sure that fuel will be available to use the product.

Increases in the price of fuel do not lead to decreases in demand because it is inelastic. Rather, a greater portion of income is spent on fuel, and less is available to purchase other goods. This leads to an overall decrease in consumer spending.

Data

United States

In 1929, consumer spending was 75% of the nation's economy. This grew to 83% in 1932, when business spending dropped. Consumer spending dropped to about 50% during World War II due to large expenditures by the government and lack of consumer products. Consumer spending in the US rose from about 62% of GDP in 1960, where it stayed until about 1981, and has since risen to 71% in 2013.[2]

In the United States, the Consumer Spending figure published by the Bureau of Economic Analysis includes three broad categories of personal spending.[3]

  • Durable goods: motor vehicles and parts, furnishings and durable household equipment, recreational goods and vehicles, and other durable goods.
  • Nondurable goods: food and beverages purchased for off-premises consumption, clothing and footwear, gasoline and other energy goods, and other nondurable goods.
  • Services: housing and utilities, healthcare, transportation services, recreation services, food services and accommodations, financial services and insurance, and other services.

For U.S. domestic consumer spending by population and income demographics collected by the U.S Census Bureau at the household level and analyzed and published by the Bureau of Labor Statistics, see the link at BLS.gov/CEX

See also

References

  1. ^ Horton, Mark (28 March 2012). "Fiscal Policy: Giving and Taking Away". Finance & Development. International Monetary Fund. Retrieved 10 November 2012.
  2. ^ "Personal Consumption Expenditures (PCE)/Gross Domestic Product (GDP)" FRED Graph, Federal Reserve Bank of St. Louis
  3. ^ https://www.bea.gov/national/pdf/NIPAch5consumerspending.pdf
Brisbane Global Rugby Tens

The Global 10s is a rugby tens tournament held during February each year in Brisbane at Suncorp Stadium. It is hosted by Duco Events and the Queensland Rugby Union. The inaugural tournament was held in 2017.

Consumer economy

A consumer economy describes an economy driven by consumer spending as a percent of its gross domestic product, as opposed to the other major components of GDP (gross private domestic investment, government spending, and imports netted against exports).In the U.S., it is usually said by economists, including in Henry Hazlitt's "Economics in One Lesson" that 70% of spending is consumer-based, but this number is disputed by economists like Businessweek columnist Michael Mandel,.

Decadent Action

Decadent Action was a mock "consumer terrorist group"[1] and "High Street anarchist-guerrilla organisation"[2] (or culture jammers) which argued that only a credit collapse through excessive consumer spending could bring about the end of capitalism. It argued that bringing about excessive inflation through unrestrained consumer spending was the sole lever which could precipitate the economic collapse upon which any revolutionary action is predicated. Therefore it promoted the idea of irresponsible credit and excessive spending on hedonistic pursuits to achieve its goals.

Its manifesto was first published in The Idler magazine and then Stewart Home's Mind Invaders: A Reader in Psychic Warfare, Cultural Sabotage And Semiotic Terrorism (1997). The group was notable for organising the first Phone-in Sick Day, which saw thousands of British Airways and Irish Garda call in sick to work[3].

Demand-side economics

Demand-side economics is a macroeconomic theory which argues that economic growth is most effectively created by high demand for products and services. According to demand-side economics, output is determined by effective demand. High consumer spending leads to business expansion, resulting in greater employment opportunities. Higher levels of employment create a multiplier effect that further stimulates aggregate demand, leading to greater economic growth.Demand-side economists argue tax breaks for the wealthy produce little, if any, economic benefit because most of the additional money is not spent on goods or services. Instead, they argue increased governmental spending will help to grow the economy by spurring additional employment opportunities. They cite the lessons of the Great Depression of the 1930s as evidence that increased governmental spending spurs growth.British economist John Maynard Keynes is the most celebrated of demand-side economic theorists. He was able to show there is no automatic stabilizing mechanism built into an economy and because of that, economic intervention is necessary. Keynes saw his theories successfully demonstrated in the 1930s when they helped to end the Great Depression and into the 1950s and 60s when capitalism experienced its Golden Age. Additional proponents of demand-side economics include Leon Keyserling, John Kenneth Galbraith, Hyman Minsky, Joseph Stiglitz, James K. Galbraith, Steve Keen and Nouriel Roubini.

Demand-side economics is held in opposition to supply-side economics which argues that economic growth can be most effectively created by stimulating business through lowering tax rates on business and decreasing regulation of corporate and financial activities.

Demand shock

In economics, a demand shock is a sudden event that increases or decreases demand for goods or services temporarily.

A positive demand shock increases aggregate demand (AD) and a negative demand shock decreases aggregate demand. Prices of goods and services are affected in both cases. When demand for goods or services increases, its price (or price levels) increases because of a shift in the demand curve to the right. When demand decreases, its price decreases because of a shift in the demand curve to the left. Demand shocks can originate from changes in things such as tax rates, money supply, and government spending. For example, taxpayers owe the government less money after a tax cut, thereby freeing up more money available for personal spending. When the taxpayers use the money to purchase goods and services, their prices go up.In the midst of a poor economic situation in the United Kingdom in November 2002, the Bank of England's deputy governor, Mervyn King, warned that the domestic economy was sufficiently imbalanced that it ran the risk of causing a "large negative demand shock" in the near future. At the London School of Economics, he elaborated by saying, "Beneath the surface of overall stability in the UK economy lies a remarkable imbalance between a buoyant consumer and housing sector, on the one hand, and weak external demand on the other."During the global financial crisis of 2008, a negative demand shock in the United States economy was caused by several factors that included falling house prices, the subprime mortgage crisis, and lost household wealth, which led to a drop in consumer spending. To counter this negative demand shock, the Federal Reserve System lowered interest rates. Before the crisis occurred, the world's economy experienced a positive global supply shock. Immediately afterward, however, a positive global demand shock led to global overheating and rising inflationary pressures.

Econometric model

Econometric models are statistical models used in econometrics. An econometric model specifies the statistical relationship that is believed to hold between the various economic quantities pertaining to a particular economic phenomenon. An econometric model can be derived from a deterministic economic model by allowing for uncertainty, or from an economic model which itself is stochastic. However, it is also possible to use econometric models that are not tied to any specific economic theory.

A simple example of an econometric model is one that assumes that monthly spending by consumers is linearly dependent on consumers' income in the previous month. Then the model will consist of the equation

where Ct is consumer spending in month t, Yt-1 is income during the previous month, and et is an error term measuring the extent to which the model cannot fully explain consumption. Then one objective of the econometrician is to obtain estimates of the parameters a and b; these estimated parameter values, when used in the model's equation, enable predictions for future values of consumption to be made contingent on the prior month's income.

Fiscal multiplier

In economics, the fiscal multiplier (not to be confused with monetary multiplier) is the ratio of a change in national income to the change in government spending that causes it. More generally, the exogenous spending multiplier is the ratio of a change in national income to any autonomous change in spending (private investment spending, consumer spending, government spending, or spending by foreigners on the country's exports) that causes it. When this multiplier exceeds one, the enhanced effect on national income is called the multiplier effect. The mechanism that can give rise to a multiplier effect is that an initial incremental amount of spending can lead to increased income and hence increased consumption spending, increasing income further and hence further increasing consumption, etc., resulting in an overall increase in national income greater than the initial incremental amount of spending. In other words, an initial change in aggregate demand may cause a change in aggregate output (and hence the aggregate income that it generates) that is a multiple of the initial change.

The existence of a multiplier effect was initially proposed by Keynes student Richard Kahn in 1930 and published in 1931. Some other schools of economic thought reject or downplay the importance of multiplier effects, particularly in terms of the long run. The multiplier effect has been used as an argument for the efficacy of government spending or taxation relief to stimulate aggregate demand.

In certain cases multiplier values less than one have been empirically measured (an example is sports stadiums), suggesting that certain types of government spending crowd out private investment or consumer spending that would have otherwise taken place. This crowding out can occur because the initial increase in spending may cause an increase in interest rates or in the price level. In 2009, The Economist magazine noted "economists are in fact deeply divided about how well, or indeed whether, such stimulus works", partly because of a lack of empirical data from non-military based stimulus. New evidence came from the American Recovery and Reinvestment Act of 2009, whose benefits were projected based on fiscal multipliers and which was in fact followed—from 2010 to 2012—by a slowing of job loss and job growth in the private sector.

Friskies

Friskies is a brand of wet and dry cat food and treats. It is owned by Nestlé Purina PetCare Company, a subsidiary of Nestlé global. Friskies was initially introduced by Carnation Company in the 1930s as a dog food brand. When Friskies cat food was introduced in the 1950s, it was the first dry pet food product specifically for cats. The brand was acquired by Nestlé in 1985. From the 1970s to the 2000s, variations in Friskies cat food proliferated as the competition for consumer spending intensified.

Guns versus butter model

In macroeconomics, the guns versus butter model is an example of a simple production–possibility frontier. It demonstrates the relationship between a nation's investment in defense and civilian goods. The "guns or butter" model is used generally as a simplification of national spending as a part of GDP. This may be seen as an analogy for choices between defense and civilian spending in more complex economies.The nation will have to decide which balance of guns versus butter best fulfills its needs, with its choice being partly influenced by the military spending and military stance of potential opponents.

Researchers in political economy have viewed the trade-off between military and consumer spending as a useful predictor of election success.In this example, a nation has to choose between two options when spending its finite resources. It may buy either guns (invest in defense/military) or butter (invest in production of goods), or a combination of both.

Household final consumption expenditure

Household final consumption expenditure (HFCE) is a transaction of the national account's use of income account representing consumer spending. It consists of the expenditure incurred by resident households on individual consumption goods and services, including those sold at prices that are not economically significant. It also includes various kinds of imputed expenditure of which the imputed rent for services of owner-occupied housing (imputed rents) is generally the most important one. The household sector covers not only those living in traditional households, but also those people living in communal establishments, such as retirement homes, boarding houses and prisons.

The above given definition of HFCE includes expenditure by resident households on the domestic territory and expenditure by resident households abroad (outbound tourists), but excludes any non-resident households' expenditure on the domestic territory (inbound tourists). From this national definition of consumption expenditure may be distinguished the household final consumption expenditure according to the domestic concept which includes household expenditure made on the domestic territory by residents and inbound tourists, but excludes residents' expenditure made abroad.

HFCE is measured at purchasers' prices which is the price the purchaser actually pays at the time of the purchase. It includes non-deductible value added tax and other taxes on products, transport and marketing costs and tips paid over and above stated prices.

Legnam Corporation

Legnam Corporation operated 132 general merchandise stores in 38 of the United States prior to becoming insolvent in June 1932. It sold ladies' apparel. Owing to the financial crisis during the Great Depression, the chain store, formerly known as Mangel's, became unable to pay its debts. The company maintained offices at 1115 Broadway and 226 Main Street in Paterson, New Jersey.The business was expanding prior to the constrictions brought on by rapid deflation and an absence of consumer spending during the economic downturn.

List of countries by GDP (nominal)

Gross domestic product (GDP) is the market value of all final goods and services from a nation in a given year. Countries are sorted by nominal GDP estimates from financial and statistical institutions, which are calculated at market or government official exchange rates. Nominal GDP does not take into account differences in the cost of living in different countries, and the results can vary greatly from one year to another based on fluctuations in the exchange rates of the country's currency. Such fluctuations may change a country's ranking from one year to the next, even though they often make little or no difference in the standard of living of its population.Comparisons of national wealth are also frequently made on the basis of purchasing power parity (PPP), to adjust for differences in the cost of living in different countries. PPP largely removes the exchange rate problem, but has its own drawbacks; it does not reflect the value of economic output in international trade, does not take into account the differences of quality of goods and services among countries, and it also requires more estimation than nominal GDP. On the whole, PPP per capita figures are less spread than nominal GDP per capita figures.The United States is the world's largest economy with a GDP of approximately $20.513 trillion, notably due to high average incomes, a large population, capital investment, moderate unemployment, high consumer spending, a relatively young population, and technological innovation. Tuvalu is the world's smallest national economy, with a GDP of about $32 million, because of its very small population, a lack of natural resources, reliance on foreign aid, negligible capital investment, demographic problems, and low average incomes.Although the rankings of national economies have changed considerably over time, the United States has maintained its top position since the Gilded Age, a time period in which its economy saw rapid expansion, surpassing the British Empire and Qing dynasty in aggregate output. Since China's transition to a market-based economy through privatisation and deregulation, the country has seen its ranking increase from ninth in 1978 to second to only the United States in 2016 as economic growth accelerated and its share of global nominal GDP surged from 2% in 1980 to 15% in 2016. India has also experienced a similar economic boom since the implementation of economic liberalisation in the early 1990s. When supranational entities are included, the European Union is the second largest economy in the world. It was the largest from 2004, when ten countries joined the union, to 2014, after which it was surpassed by the United States.The first list includes estimates compiled by the International Monetary Fund's World Economic Outlook, the second list shows the World Bank's data, and the third list includes data compiled by the United Nations Statistics Division. The IMF definitive data for the past year and estimates for the current year are published twice a year in April and October. Non-sovereign entities (the world, continents, and some dependent territories) and states with limited international recognition (such as Kosovo, the State of Palestine and Taiwan) are included in the list in cases in which they appear in the sources. These economies are not ranked in the charts here, but are listed in sequence by GDP for comparison. In addition, non-sovereign entities are marked in italics.

List of largest consumer markets

Below is a list of the largest consumer markets of the world, according to data from the World Bank. The countries are sorted by their Household final consumption expenditure (HFCE) which represents consumer spending in nominal terms.

Marginal propensity to consume

In economics, the marginal propensity to consume (MPC) is a metric that quantifies induced consumption, the concept that the increase in personal consumer spending (consumption) occurs with an increase in disposable income (income after taxes and transfers). The proportion of disposable income which individuals spend on consumption is known as propensity to consume. MPC is the proportion of additional income that an individual consumes. For example, if a household earns one extra dollar of disposable income, and the marginal propensity to consume is 0.65, then of that dollar, the household will spend 65 cents and save 35 cents. Obviously, the household cannot spend more than the extra dollar (without borrowing).

According to John Maynard Keynes, marginal propensity to consume is less than one.

Microsegmenting

Microsegmentation is a marketing process that uses techniques such as data mining, artificial intelligence, and algorithms to recognize and predict minute consumer spending and behavioral patterns. The collected information is used to help marketers identify extremely precise microsegments (down to the individual consumer level). Microsegments can then be the focus of personalized direct micromarketing and micropromotion campaigns.

This form of micromarketing considers that each consumer has different ideas and feelings about a company’s products, services, prices, and promotions, and sets out to recognize these differences and respond to them in an appropriate manner.

Monetary transmission mechanism

The monetary transmission mechanism is the process by which asset prices and general economic conditions are affected as a result of monetary policy decisions. Such decisions are intended to influence the aggregate demand, interest rates, and amounts of money and credit in order to affect overall economic performance. The traditional monetary transmission mechanism occurs through interest rate channels, which affect interest rates, costs of borrowing, levels of physical investment, and aggregate demand. Additionally, aggregate demand can be affected through friction in the credit markets, known as the credit view. In short, the monetary transmission mechanism can be defined as the link between monetary policy and aggregate demand.

Premium Friday

Premium Friday is a campaign to promote consumer spending advocated by the Japanese government and Japanese business organizations. It had been expected to have a favorable effect to the movement to improve work style.

Real gross domestic product

Real gross domestic product (real GDP for short) is a macroeconomic measure of the value of economic output adjusted for price changes (i.e. inflation or deflation). This adjustment transforms the money-value measure, nominal GDP, into an index for quantity of total output. Although GDP is total output, it is primarily useful because it closely approximates the total spending: the sum of consumer spending, investment made by industry, excess of exports over imports, and government spending. Due to inflation, GDP increases and does not actually reflect the true growth in an economy. That is why the GDP must be divided by the inflation rate (raised to the power of units of time in which the rate is measured) to get the growth of the real GDP. Different organizations use different types of 'Real GDP' measures, for example the United Nations UNCTAD uses 2005 Constant prices and exchange rates while the FRED uses 2009 constant prices and exchange rates, and recently the World Bank switched from 2005 to 2010 constant prices and exchange rates.

Truetone

A truetone or realtone is a ringtone which has been encoded with a sampled audio format such as MP3,

AAC, or WMA. It is also referred to as a mastertone.

Truetone ringtones are excerpts of real songs limited to just 30 seconds or less.

Ringtones started the mobile content market by demonstrating a demand for customization, initially amongst teens but then extending into the mass market. The first generation of ringtones were monophonic instrumental renditions of popular and sometimes original tunes. Users could pay to download ringtones to their mobile phones, optionally attaching them to incoming calls from select individuals in their address books. Second generation polyphonic ringtones first became popular in 2002 and encoded sequences of MIDI commands that provided higher fidelity, but these too are purely instrumental. In 2004 ringtones represented a $4 billion global market, almost all of it outside the United States of America.

Realtones have quickly replaced polyphonic ringtones and have taken over the ringtone market. In the second quarter of 2006, realtones accounted for more than 76 percent of mobile consumer spending on music personalization. Although realtones are technically mobile music, their popularity is driven mainly by the need for self-expression rather than standard enjoyment.

Ringtones have also had a dramatic effect on the mobile content value chain. Monophonic and polyphonic ringtones had to be published for each of the phone models, which led to the growth of various successful businesses for companies such as InfoSpace and Jamba!, who would both publish the tones and interact with carriers for their distribution and billing. Other international mobile content providers competed with them by providing truetones for free. As the market shifted to truetones and the formats standardized to Internet-standard formats, the added value of such third parties has diminished, and labels have chosen to publish their own songs and interact directly with the mobile carriers for billing and distribution, thereby cutting out these middlemen.

Truetones represent a high-growth revenue stream for the music business, and labels often release the tones before the singles to "prime" the market. Madonna released her song "Hung Up" as a truetone before releasing the single. Truetones often outsell singles.

Concepts
Research types
Consumer attributes
Processes

This page is based on a Wikipedia article written by authors (here).
Text is available under the CC BY-SA 3.0 license; additional terms may apply.
Images, videos and audio are available under their respective licenses.