U.S. Consumer Sales Drop Amid High Unemployment Rates

Consumers make spending choices, may lead nation to recession or ‘national crisis’

The U.S. is faced with high unemployment rates as the costs of living continue to rise, leading to a downfall in consumer sales. Ben S. Bernanke, economist and Federal Reserve Chairman stated, “This unemployment situation we have, the job situation, is really a national crisis”, referring to the jobless rate being at or above 9 percent since April 2009. Among the unemployed, 45 percent, or nearly 7 million people, have been without jobs for at least six months. This 9 percent unemployment rate has been in existence for a number of years now and “is unheard of”, Bernanke concludes.

According to the U.S. Bureau of Labor Statistics, August 2011 featured an increase in unemployment rates in 26 states, a decrease in 12 states, while in 12 other states the rates remained unchanged. The unemployment rate stayed at 9.1 percent in August, a slight decrease from the 9.6 rate of August of last year. However, mass layoff actions recently left over 165,000 workers unemployed. Additionally, average hourly earnings decreased – a first in over 3 years.

Economists are reporting that the lack of jobs goes hand in hand with consumer spending, which has come to a slight halt recently. Wages remain unchanged for those lucky to be employed. Although the effect of this on retail sales is minor at the moment, the current situation may led to another recession. “Jobless claims are just one of the symptoms of what’s happening with the economy” states Robbert Van Batenburg, head of global research at Louis Capital Markets in New York.

Dealing with Nationwide Economic Crisis

Congress is urged to lead the nation to a speedy economic recovery. The first step is to deal with the long-term unemployment and to help people find jobs. An increase in jobs and higher wages will eventually lead to an increase in sales and in consumer spending. This action may save the nation from a recession in the nearest future. Jobs are being cut, but there is room for optimism in the economy. The economic growth, although almost unnoticeable, proves that positive growth is possible since surprisingly, less people are applying for unemployment benefits, giving way to a decreased population of the unemployed.

As stated by Rudy Narvas, an economist at Societé Generale in New York, “Without payrolls picking up, you’re not going to get any boost in economic activity. People are very worried about the economy.” Narvas predicts that the job growth will not change quickly but rather that the economy will be “chugging along near stall speed.”

Increased prices, decreased consumer confidence

The current economic situation is forcing many consumers to make choices regarding spending, leading to lower consumer confidence. “Consumers remain very concerned about income, employment and the state of the economy”, sums up John Herrmann, an income strategist at State Street Global Markets LLC in Boston, which “all point to even weaker labor market conditions.”

As a result, many consumers are forced to give up on certain relishes by thinking twice before making expensive purchases such as electronics or going on that luxurious vacation. Stores such as electronics store Best Buy are reporting a symbolic decline in profit. Auto sales are also affected by the not-so optimistic job situation.

As reported by the U.S. Bureau of Labor Statistics Consumer Price Index (CPI) Summary, which monitors the change in prices of different goods, prices have increased on gasoline, food, shelter and apparel. Items such as used cars, medical care, recreation, tobacco, household furnishings and personal care items have seen an increase in prices. Costs of living constantly increase with the rising costs of raw materials such as oil and gasoline, as well as due to the increasing taxes. It doesn’t help that prices keep on increasing while wages stay the same or decrease, hence the drop in consumer sales throughout the nation.

Consumer sales are affected mainly by the fact that companies are simply not hiring rather than by wages decreasing. U.S. businesses are discouraged to hire, which especially affects recent college graduates beginning their search for jobs. New jobs are not being created, therefore the remaining jobs are in for an even fiercer competition. As long as the job situation remains unchanged, the probability of consumer sales increasing significantly is slim to none.

NOTICE: This article was based on research of stock market information and other sources of information, found both online and in print media. Neither StockTips.com nor any of its owners, contributors, officers, directors, consultants, or employees take responsibility for the accuracy of the information contained in this article or the accuracy of the information on which this article was based. StockTips.com was not compensated by any of the companies mentioned in this article for the preparation of this material, nor were the materials approved by the companies which were mentioned.

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