Glossary Economy Consumer Spending

Consumer Spending

Consumer spending is a measure of the amount of money used by ordinary people to make purchases in an economy in a period of time. It is one of the most important drivers of a modern economy. Consumer spending is affected by a number of factors. In part, it is seasonal in nature.

In Western economies, for example, consumer spending is far higher around Christmas time than at other times of the year. In part, it is affected by levels of disposable income. Anything that changes the average level of disposable income will ultimately affect consumer spending.

For example, if a government raises or lowers taxes, this will result in the ordinary person having more or less disposable income than before. This will shortly feed through to consumer spending levels in the economy. Similarly, a raising or lowering of the prevailing level of interest rates in the economy will affect disposable income through the level of monthly payments which will be required on debt products such as mortgages.

Most importantly, consumer spending is affected by the level of confidence which people have in the economy and in their own personal financial circumstances. In particular, the purchase of large ticket items, such as houses, cars, and some white goods, will be swayed by current consumer confidence levels.