Intermediate Macro Student`s

IntermediateMacro

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Throughoutthe world, one major challenge every government grapples with is thestability of its economy. Whereas, governments are tasked withensuring respective countries` economies improve, it is factual tostate that there are external factors that influence it. Forinstance, the business-stability or lack of it thereof will seeemployment status either go up or decrease. Additionally, consumerspending is an imperative to every economy as it enables thecirculation of money to various businesses thus improving it. In thisessay, the focus dwells on the consumer-spending and auto sales inUnited States as it relates to the economy.

Consumer-spending

Inan economy, consumers play a pivotal role in its growth ordeterioration, for that matter. Typically, consumers buy goods suchas cars, food and other commodities economists refer to this asconsumer spending. Whenever the government seeks to balance theeconomy, one thing it encourages is the level of spending exhibitedby the consumers. Usually, this is done by reducing tax and in somecases releasing a lump sum which consequently sees more spending on avariety ofproducts. When the spending is on the rise, business peopleare sometimes able to pay employees better salaries thus improvingtheir lives.

Autosales

Inthe US, the sale of automobiles is a major determinant of the economyand many manufacturers send the sales report to the Department ofCommerce. Then, the department releases the monthly report in aboutfive days – after submission- and this enables the economists tounderstand the consumer spending and demand on vehicles. In thelightof this, choosing consumer-spending and auto-sales is a perfect matchfor this paper as it reflects a lot about the US consumers. Firstly,if the consumers spend higher on cars, it could be argued that manyare financially stable.

Consumer-spendingand Auto-sale statistics

Asof July 2014, Bureau of Economic Analysis (BEA, 2014) reported thatconsumer-spending had hit a new mark.That waswith an increase of $40 billion to reach $10960.90 compared to lastyear’s $ 10912.60. In addition, it was noted that this was thehighest spending in US history. On the other hand, inOctoberauto-sales witnessed a 2.8% increaseof light-vehicle, comparedto September’s sales, which translates to around 1.3 million ofvehicles sold. That was a 6% increase compared to the same period ayear ago which necessarily means Americans have bought more cars thisyear than the previous one. However, cars sales had only grown by 1%but different figures on heavy-duty trucks and light vehicles whichgrew by 5.1% and 9.7% respectively (NADA, 2014)

GraphicalRepresentation of the Relationship between GDP Auto Sales.

Thegraph above is based on hypothetical data as per the observed trendsin the relationship between consumer spending and auto sales.

Agraphical representation of the data has shown above relates thepercentage growth in the GDP to the percentage increase in autosales. As the GDP of thestate increases so does its spending in cars.The consumers have more disposable income to be able to spend onluxuries since the economic state of the country has increased.

Relations

Fromthe data presented, one can clearly notice several trends hence makesome conclusions about the American people. Firstly, it isappropriate to state that many Americans are spending less on carsbut a significant amount on commercial vehicles. Secondly, the USeconomy could grow if the light and heavy trucks bought by Americansare put to use in profitable ventures. Finally, analyzing theincrease in the expenditure explains – in a perfect way- some ofthe ways the Americans are spending money. In other words, there wasan increase on consumer-spending this year, and so was the increasein the auto-sales. Therefore, this could as well be interpreted tomean that the public is spending money on cars with the sole purposeof generating more money.

Ifone were to focus on a different way of thinking then, one wouldrealize that car salesare not the only indicator of consumerspending. The fact that one procures a new automotive does notessentially mean that they are better off financially than they werebefore. Some aspects other than car sales also explainconsumer-spending. The lifestyle of a particular person may promptthem to live way above their means. In macro-economics, Duensberrybrings about the notion of relative income hypothesis. In therelative income hypothesis, one tries to keep up or even surpass the“Jornesses”. So the increase in car sales may also be attributedto the fact that some buy vehicles since they feel the urge to keepup with another individual whom they identify with in consumptiontrends.

Ifa family’s income was to increase as a result of positive economicgrowth, then this family will shift its spending to be in line withthat of the family it identifies withon spending. The rise inspending in automobiles can, therefore, be related to the relativeincome hypothesis. The contradiction above does not however mean thatconsumer spending and auto sales do not go hand in hand. The two areassociative of each other. The theory also shows this to a smallextent since the low-income family would only be able to keep up withthe “Jones” if they increased their level of income. The level ofconsumer spending is, therefore, a close cousin to the level ofauto-sales. Cars are apart of luxury and not a necessity hence peoplewill tend to buy them if they have extra income to spend on suchluxuries.

Inconclusion, the consumer spending and auto-sales in US areintertwined as clearly indicated by the data provided. With theAmericans hitting a new mark in terms of spending, the good news isthat the expenditure is not perishables or mere consumption. Instead,many are spending on automobiles intending to make more money in theprocess. With the increase seeming to rise each year, it is vital forthe business world to understand the consumer trend in order to seizethe opportunity. In short, if the American public is going for thevehicles capable of doing business, the people in the automobileought to meet the need.

References

`ConsumerSpending.` (2014) Bureauof Economic Analysis.RetrievedNovember 2014 from

http://www.bea.gov/national/consumer_spending.htm.

Nada.org.(2014). `NADA DATA.` Retrieved November 10, 2014 from

http://www.nada.org/Publications/NADADATA/.