Where Have All the Consumers Gone?

By: Dr. Lynn Reaser

April numbers revealed a soggy retail sales report. Confounding expectations that spring would bring a rebound from spending depressed by bad weather, total retail sales did not budge between March and April and were up less than 1.0% from a year ago. With household spending accounting for about 70% of gross domestic product (GDP), it could be hard to generate strong economic growth if consumers stay on the sidelines

The personal saving rate dropped from an average of 4.8% in 2014 to 5.3% in March. What is going on?  Consumers are using some of any income gains and lower costs at the gas pump to pay down debt and raise their savings. Stronger household balance sheets are important to the underlying financial health of the economy and should underpin higher expenditures going forward.

Consumers already are spending actively in the new car market, at restaurants, and online. If they have the means, Americans never skimp on shopping for too long.

Image Credit: globe-views.com


Europe’s Struggling Economy—Can the U.S. Help?

By: Dr. Lynn Reaser


As Europe struggles to prevent falling into recession and deflation, is there anything we can do from this side of the pond to help?  While our abilities are limited, our policies and performance could have a sizable impact.

Directly, on the policy front, we could actively work to reach agreement with the European Union on the pending trade and investment deal–the Transatlantic Trade and Investment Partnership (TTIP). This would cut customs tariffs on exports of various goods to the U.S., allow more European services to be exported, enable critical inputs to be imported for final products, and allow European companies to bid on public contracts. Although the full effects of the TTIP would take time to be fully recognized, the positive impact on European planning and expectations could be sizable.

More indirectly, a vigorous U.S. economy would generate demand for more European consumer and industrial products. A strong dollar would further boost European exports and draw more American tourists.

Europe’s solution to its economic problems will require its own policy responses, such as from the European Central Bank, and fundamental structural reforms in many countries.  Nonetheless, the U.S. can have a positive impact on Europe’s outlook for 2015 and beyond.

Fixing Wall Street—Let’s Try Again

By: Dr. Lynn Reaser

ImageThis past week, Senators Elizabeth Warren and John McCain, along with two other colleagues, introduced a bill to resurrect some of the key features of Glass-Steagall that were repealed in 1999.  Glass-Steagall was a creation of the 1930s as an attempt to stem the financial excesses that had developed prior to the Great Depression.

The new legislation would reinstate the firewalls between commercial banks and investment firms.  Although it might not prevent a new financial crisis, it could help.  At a minimum, it might reduce the pressure on commercial bankers to sell some of the riskier investment products created by the investment side of their current firms.

Investment companies should not be prevented from assuming some risk, but such actions should not be protected by deposit insurance.  Banks of all sizes have to pay premiums for that insurance, which ultimately are passed on to consumers.  These consumers should not have to subsidize the activities of investment banks.  Taxpayers, who could also be tapped should deposit funds be depleted, should also not be required to again bail out large or complex Wall Street firms.

Some financial firms are still too big to fail.  We need to fix that problem.

Image Credit: http://www.arizonafoothillsmagazine.com/solar/energy-independence/aps-finds-itself-on-the-wrong-side-of-wall-street/