Tag Archives: economic growth

Consumer Confidence and Its Importance

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Economic indicators are sources of data used in a macroeconomic scale to be able to interpret present and future investment potentials or to be able to evaluate and grasp the overall health of a particular economy and an individual’s financial state. One type of an economic indicator is consumer confidence, which is also the same as consumer sentiment. This post will talk about consumer confidence in details and why is it important.

 What is consumer confidence?

Consumer confidence refers to the amount or level of spending consumers takes part in. This is a statistical measurement influenced by opinions of the consumers. It simply means that it is the feeling of an individual relative to his or her own present financial situation along with the general health of the economy and the potential for an economic growth.

 When does consumer confidence affect the markets?

Consumer confidence affects the market as there are investors who depend on a dynamic consumer spending conditions. When making investment decisions, one of the many indicators needed to look at is this particular concept.

 Where did consumer confidence originate?

It was during the mid-20th century when consumer sentiment or confidence was established as an economic concept. It has become as an indicator that can greatly influence both economic and public policy and the stock markets in a broad-spectrum.

At that time, when consumer sentiment was regarded to be less positive, the markets react by becoming bearish and vice versa.

 How do you translate consumer confidence?

Just like in the olden times, a high level of consumer confidence can indicate that consumers, generally, feel good about their financial status and their ability to acquire and maintain their jobs. If consumer confidence is high, then consumers are more likely to spend the amount of money they have and such tend to increase proportional to their thinking. On the other note, if consumer confidence is low, then consumers are less likely to spend their money.

 Why is consumer confidence important?

As mentioned before, consumer confidence measures the level of confidence consumers have towards the general health of the economy. It also reveals how confident the public is towards the stability of their employment as well as their income. Consumer confidence then dictates a person’s economic decisions such as spending.

This in turn affects the economy. As consumer confidence increases, the economy expands. When the opposite happens, such as when the economy contracts, it can mean that consumer confidence decreases.

 Conclusion

Consumer confidence and / or sentiment data is important since it can be utilized by a number of individuals such as investors, retailers, banks, manufacturers and even various government agencies to be able to assess their actions and to better strategize. Moreover, consumer confidence (or sentiment) is also helpful to help people push forward even such as the concept of a self-fulfilling prophecy. However people must still be careful because if the contrary happens, it can greatly affect a person’s financial position.

 

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Is Inflation Something to be Dreaded About?

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Inflation is indeed an extremely debated topic in economics. There are different points of view stating that inflation is just a phenomenon that drags the economy down – making everything harder and riskier.

Inflation is usually described as the sustained rise in prices of goods and services in a certain country. Its triggering point is – the value of money falls. If the prices of things keep on increasing and is making everything more difficult, then, is inflation something to be really dreaded about?

Or does it bring its own benefits, too?

 

Inflation is actually good for the economy

In cases that the economy is not running fully due to deflation (i.e. rise in unemployment and unused resources), inflation can help turn the tables. When the economy has been stuck in a period of recession, a higher rate of inflation can help it recover, thus, boosting its economic growth.

Moreover, when the prices of goods and services are falling (deflation), people are becoming unwilling to spend their money since they are thinking that prices can get cheaper sooner or later, hence, it leads them to delay purchases. If this happens, it can have an adverse domino effect to demand, then affecting production, distressing employment rate which may further lead to layoffs, and worst, a weakening and failing economy.

On the other hand, inflation boosts consumption. If you know that items are more likely to rise by 2-3% in a year, then you can be urged to purchase it now since buying it after some time can most likely increase its price.

 

Inflation essentially increases wages

If the price of goods and services continue to increase in the market, employers find it easier to adjust and increase wages. In turn, employee productivity increases since there is an increase in the workers’ morale. Rise in wages can be attributed to inflation.

 

Inflation in fact aids debtors

Inflation is a great help to people with current debts and are repaying their loans. With inflation peaking, wages of people can increase fast as well. To put it simply, loan payments become less valuable since it is taking a smaller portion of a person’s income. Quite the reverse of deflation or falling of prices – it actually intensifies the value of loans.

 

A good example is the United States, which is known as the leading debtor in the world, inflation helps reduce the impact of its massive debt.

 

Inflation is favorable if it is 2-3% a year

Economists argue that a little does of inflation is vital to promote economic growth and to stabilize the economy. The considered healthy rate of inflation is 2-3% per year. As examined in this article, inflation can still be considered positive since it can result to wage growth. It can also lead to profitability of businesses due to a continued flow in their capital.

 

Inflation is a constructive phenomenon as long as the factors being considered such as employment, business growth, and wage concerns are moving up altogether in unison.

 

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