Economic Woes Scare Off Purchasers

Economic problems, especially unemployment and potential firings due to the economic downturn may well dampen consumer spending. Many people today have family members or friends, or friends of friends who are out of work. This reality is penetrating people’s psychological defenses that “it could never happen to me!” When you hear about something enough, you start to think that maybe “it could happen to me”.

People start trying to cut spending when they can. It can mean little cuts like not going out to eat so much or even saving on the morning cup of coffee on the way to work. Savings can also be achieved by not replacing big and medium ticket items as frequently as one would like.

For example, people may decide to continue driving their present car rather than obligating themselves for more monthly payments for a new car. This would hurt Ford, General Motors, and Chrysler, as well as foreign car manufacturers who have dealerships in America. And think of all of the industries that are dependent on the car industry including rubber for tires, glass for windows, metal for car bodies, electronics, and plastics etc. At least the mechanics will benefit from having more cars repairs.

Another example is that people can keep their present furniture for longer rather than replacing it as soon as they would like. This would hurt the furniture manufacturing, wholesale and retail industries. This goes with everything that we use every day.

Now take this to an international level with hundreds of millions of people cutting back on purchases.  Manufacturers no longer need to produce so much so they fire workers. These ex-workers cannot afford to buy as much, etc. We have the chicken and the egg syndrome until the economy finds a new balance that can both provide jobs for people and provide them with the goods and services that they can afford.  Stimulus packages were supposed to do this but they were applied irresponsibly. We have to wait and hope that after the elections, new leadership will prove itself.

About James Cannon

James Cannon is an experienced hedge fund analyst. He has served on the advisory boards for various different Fortune 500 companies as well as serving as an adjunct professor of finance. James Cannon has written for a variety of Financial Magazines both on and off line. Contact James at james[at]