Considered by many economists to be the most important short-run determinant of economic performance, consumer spending is the driving force behind the U.S. economy. It encompasses all individual and household purchases of services and goods. In the ideal economy, it should be equal to aggregate economic output.
When analyzing consumer spending statistics, it’s important to understand that there are five different determinants of consumer spending that influence the economy. The biggest and most important of these are disposable income and household debt. Next come interest rates, consumer confidence, and credit supply. Combined, these five factors can dictate how a country’s entire economy performs.
From inflation to deflation, consumer spending reflects the state of the economy in the U.S.A. It holds the economy back when consumer trust is low and pushes it forward during periods of prosperity. Ever since the official end of the Great Recession in 2012, consumer spending data has indicated that the economy is recovering.