Big Picture Economics: How to Navigate the New Global Economy

Chapter 5

Shopper Nation: Why We Buy or Don't Buy

We are a nation that likes to shop. Consumer spending represents about 70 percent of the annual U.S. gross domestic product of $16 trillion, the largest in the world.

Americans purchase all sorts of goods, such as vehicles, computers, houses, and clothing. But we also buy services such as health care, hotel rooms, and restaurant meals. In fact, two-thirds of all spending and over 45 percent of the economy consists of purchases of services.¹

But the decision whether to buy something is complex. Anyone making a purchase has to decide if they can afford it. When was the last time the boss promised a raise? If there isn't enough money in the wallet or checking account, is it worth pulling out the credit card?

The decision to use the credit card or taking out a loan to buy a car may entail how confident the consumer is in having a job in the future. Or maybe the purchaser has assets that are rising in value—a stock market portfolio or a house—so the job may not be as important. And if the consumer is approaching the so-called golden years, perhaps more of the spending will go toward health care or cruises and less on new sports cars or the latest smartphone.

In this chapter, we look at how the economic environment interacts with this critical part of the economy.

What Causes the Itch to Spend?

At 10:30 A.M. on a steamy mid-July day, consumers are starting to stream into Macy's Herald Square flagship store in midtown Manhattan. Some head ...