I see headlines and articles discussing how consumer spending is driving, or of late, possibly slowing, the economy. But if not for people buying non-essential products and services, what else would drive the economy? Everyone needs food, shelter, and clothing. Many need cars, depending on their location. But I take it that spending on necessities is not enough, especially non-consumable or long lasting things like houses and cars.
In: Economics
Corporate spending can be a huge driver. A lot of the economic growth of the 1990s was driven by companies purchasing massive amounts of technology products – PCs, servers, networking equipment, printers, software, websites, etc.
So just to be clear, when we talk about consumer spending rising and falling that does include essentials like food, energy, and shelter. Core spending excludes food and energy.
“Essential” spending is complex in such a rich country because, for example, I can eat potatoes for a month and only spend like $20 on food, or I can eat out every day and spend $1000 on food. So even “essential” spending is extremely discretionary. Thus, we tend not to discriminate.
In a fully developed economy you are roughly correct: the biggest driver is frequently going to be consumers. Exports can also be a major driver, whether they be goods or services (in the US, “consumer spending” is domestic spending, so what consumers elsewhere are doing is immaterial to that specific metric). If a country were to devalue its currency it will see a drop in consumer spending but a spike in exports (usually), and this tends to improve the overall economy.
In less developed economies you might see significant investment in infrastructure, which needs to be paid for by “consumers” through taxes or similar mechanisms. This work gets counted in metrics like GDP but obviously isnt “consumer spending”. In different types of governments you might also see nationalized industries and such, further complicating the metric relative to economic activity metrics.
Consumer spending has to drive the world economy. Nothing else can.
The US consumer spending drives the U.S. economy and the world economy.
If the rest of the world greatly increased its consumer spending that could drive the world economy instead of the US consumer spending doing it.
C + I + G + NX = The Economy
C is consumer spending
I is business spending (investment). It’s functionally the same but a different group. Businesses buying stuff for sale.
G is government. Government buys trillions of dollars of labor and things.
NX is net exports, exports minus imports.
As you correctly identify, C is the biggest. But it’s not alone.
Ideally, your economy would be built on exports. It’s better if other people are spending money on things you make, rather than your country spending money in someone else’s.
Civilization thrives on trade. If you were alone, you would need food and shelter to survive. You likely aren’t a farmer, so you don’t have to grow food. You have to make something that is worthwhile, to get money, to buy the food, and pay for your shelter.
In other words, consumer spending…trade…is what keeps civilization going. Production creates the stuff, and people trade for what they need/want with money. All of this starts with food and shelter, and either making those yourself, or making money to buy them.
There is no economy without consumer spending. It would just be governments of countries exchanging natural resources for no reason.
USA…. is war… We sell the weapons to the ukraines, russia, isreal and we sell to any other 3rd world dicators so they can go kill themselves… Then we introduce them to the U.S dollar that we use to leverage for their land and resources… it all very bleak and deeply upsetting
There are basically three things that can drive demand: consumer goods, means of production, and debt.
So if not consumer goods it can be investment in infrastructure, equipment, factories, and production inputs
Or purchasing things with borrowed money.
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