What is Consumer Spending?

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  • Written By: Matthew F.
  • Edited By: Bronwyn Harris
  • Last Modified Date: 23 May 2020
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Consumer spending can also be known as consumption or consumer demand. Every person is a consumer in one form or another. Each item people buy helps to form the demand for each product. Consumer spending is by far the largest part of demand at the macroeconomic level. The two variants of consumption in the aggregate or effective demand model are induced and autonomous consumption. Services play a big part in a nation’s economy. The two largest services in any economy are real estate and health care. While these two services are not a weekly item, when they are used, they provide plenty of money.

The roughly 30 percent of any economy which is not driven by consumer spending falls into two categories: government and business spending. The government spending helps regulate economy and provide the services. Business spending allows companies to make and furnish the goods and services to the public.

Consumer spending is more or less affected by four different areas in the economy: Consumer sentiments, oil, government implemented economic stimuli, and taxes. Consumer sentiments are the position of households and entities in relation to the economy. When people have faith in the economy, they are willing to spend more money. In most cases, if a person’s sentiments are not confident, they will choose to spend less and save more in fear of a downtime. When confident the nation will have a healthy economic status.

Oil is a precious resource which is vital to most countries around the world. When the price of oil is up, consumers must spend more on oil. Consumer spending on most items will drop when the price of oil is up because oil takes a greater portion of their available money. A higher price of oil will force consumers to make a tough decision as to where they should allocate their money and what to leave out.

During economic difficulties, a government may try to rectify the situation by dispersing stimulus plans to try and jump start an economy. This does not always fix the problem a nation is having in economically troubled times. In economic downtimes, people tend to save their money than rapidly change their spending habits. Banks tend to save money in by lowering interest rates in savings accounts which could promote future spending.

Taxes are a powerful tool as relating to consumer spending. Temporary tax changes could result in widespread change in consumer spending. Most consumers only change their spending habits after a change in taxes affects their personal income. Consumer spending is usually consistent, with few consumers undergoing many changes in their spending habits.

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