Wednesday, August 8, 2012

The psychology of Economics---Consumer confidence is down and it serves as a drag on the economy. Simple, but powerful...

Economics is part social science and part psychology.  What people think "en masse" matters.  Consumer expectations are one of the factors affecting Aggregate Demand.

This short posting below from the WSJ suggests that expectations for the near term are not positive for a good percentage of people.  Consumers tend to hold back spending when they are unsure about their immediate situations. When consumers hold back then businesses cut back---the cycle continues.

More Than 50% of Poll Respondents Expect Economy to Get Worse
Consumer spending in the U.S. continued to decline during July as consumer sentiment about the economy waned and expectations about personal finances were unchanged, according to Discover Financial Services’ U.S. Spending Monitor.
The poll index, which tracks economic confidence and spending intentions of about 8,200 consumers a month, declined 1.4 points to 89.3 points last month.
The poll found 28% of respondents view the U.S. economy as improving, down from 29% in June and 33% in May. Roughly 53% of respondents now rate the U.S. economy as poor, unchanged from June.
However the portion of consumers that expect the economy will get worse rose to more than half for the first time this year–up 4 percentage points at 53%–as sentiment among men worsened. The portion of men who indicated expectations the economy will worsen was up 9 percentage points at 57%, while the amount of women who felt that way was unchanged at 50%.
The number of people who said their personal finances were improving was unchanged at 23% in July from June, but was down from 25% during May. Respondents who see their personal finances getting worse was up 2 percentage points to 49%.
While 28% of respondents planned to spend more next month, the increase was driven mostly by an increase in anticipated spending on nondiscretionary items. About 38% of respondents expect to spend more on household expenses.
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