Financial Planning, Budgeting, and Forecasting: Financial Intelligence Collection (7 Books)

APPENDIX A

Credit: Consumer Spending’s Swing Factor

Given the central role played by consumer spending in determining the course of the economy and the stock market, we need to grapple with the often significant effect of consumer borrowing in accelerating or decelerating consumer demand. The importance of consumer borrowing is implicit in chapter 12’s discussion of the relationship between interest rates and consumer spending. Recall that figure 10-9 presents the combined effect of growth in employment and consumer credit in leveraging up growth in individuals’ real hourly earnings to considerably greater growth in aggregate real consumer spending.

However, the effects of borrowing, or credit, on consumer spending are usually coincident. As ...