This year, the US has experienced a decline in gasoline prices, as well as, an appreciation of the US dollar. Many companies that rely on exports are facing stronger competition, as their competitors are able to sell goods at a lower cost. American consumers are importing more and a decrease in exports is creating "a drag on job creation and overall growth in the United States."
Many expected the decrease in gasoline prices to counter the effects of the US dollar appreciating. However, consumers are unexpectedly saving more instead of spending. This has caused the Federal Reserve to rethink their future plans in regard to interest rates.
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8 comments:
As we know, expectations play a huge part in economics. Everyone is expecting interest rates to rise soon and everyone is expecting gas prices to rebound, but both are taking longer than expected. While the purchasing power of americans grows stronger, this isn't helping the balance of trade.
I can relate this article to my International Economics class. It is surprising that consumers are saving more than spending, especially with a decrease in gasoline prices. Perhaps consumer confidence is not yet completely restored from the recession.
It is unusual to see consumers saving more than spending in this environment. Especially with the expectation of interest rates rising in the near future, one may expect consumers to purchase big ticket items now with finance and the case of low oil prices. It is definitely possible that consumer confidence still needs to rise, although the economy has been improving, hopefully that trend continues.
Consumer confidence is probably a large reason why the U.S. hasn't seen an increase in spending. Saving is due to lack of trust in the economy and fear of another recession looming amidst our recent recovery. If citizens and consumers don't have faith in the economy the spending will not increase.
Gas prices were so low earlier this year, and have been on the rise. It's interesting that consumption is still lower than expected. I agree with Emily in that we might not be fully recovered from our crisis.
The strong dollar is definitely a bad news for exporting sector. I agree that the consumer confident might still low because of the financial crisis.
A reason that consumers are still saving more might be that they are still vary of spending after the last financial crises and combined with declining exports due to strong dollar and rising imports, it makes a bad situation for the US economy.
Emily makes a good point. I think that consumers are still unsure of the market because of the recession and therefore are saving more in case of future chaos. But I think something needs to be done to get consumers to spend more and to get banks to loan out their excess reserves that they are withholding.
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