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Happy days are here again! Or are they? After 3 years of belt tightening, American consumers began spreading their cash around again as consumer spending showed an increase of .08 percent, the largest increase in over a year. Was the new “frugality” that came to characterize the fiscal attitudes of Americans only fleeting? Or are we just seeing a brief spending burst from the news that the economy has improved? Either way, spending has to be good for the economy, right? Yes, and no – good and bad.
The economy has been dragging largely based on depressed consumer spending, so an increase is just what the doctor ordered. An increase in consumer spending in conjunction with an increase in consumer confidence, as was the case in February, is even better. As anemic as the jobs reports have been, the fact is that there is some hiring going on, so people have a more positive view of the economy.
It seems that much of the increases are coming from the upper end of the spectrum as upper-middle to high income consumers are opening their wallets again for higher end goods, and the fast food crowd is once again “going big” on their combos. Middle class consumers are also increasing their spending, although in more modest amounts.
Restaurants are reporting increased sales of appetizers, and grocery stores are seeing a decline in generic brand sales in favor of name brands. According to a recent AAA Travel survey, many Americans are still planning to take their summer vacations, despite rising gas prices.
Since food and gas are essentials for most people, more consumers are using their rewards credit cards that offer points or cash back for everyday purchases, including gas and groceries. And, with the onset of the summer travel season, families are looking for ways to save money on travel, especially if they are booking vacations using their credit card.
As consumers search for ways to benefit from purchases, they are looking for credit cards that provide the best deal. Consequently, the credit card companies are facing stiffer competition for new customers, so they are rolling out new rewards programs and lower interest rate credit card offers.
For instance, with the Chase Freedom Visa Card $100 Bonus Cash Back, you earn a $100 cash bonus for spending $500 in your first three months of ownership, which is easily accomplished between filling up your gas tank and buying groceries. In addition, cardholders receive 5% cash back on up to $1500 spent at grocery stores and movie theaters 4/1/12 – 6/30/12. New savings categories are added every three months, including those for gas stations, restaurants, and airlines.
The 0% APR for fifteen months and no annual fee make this an attractive offer for those with a good to excellent credit history. The decision to spend and use credit cards again is not something to be taken lightly, and it’s always a good idea to research the best deals for your individual needs
After paying down debt over the last three years, and adhering to strict budgets, more people are cautiously beginning to spend again. Increasing consumer confidence and spending is crucial to economic recoveries, because it’s what fuels everything else that drives the economy.
However, many economists see this latest spending spree as only temporary, driven perhaps, by pent up desires to splurge a bit. However, as long as “real” unemployment remains high, and the housing market continues to sag, real consumption is still a ways off. It’s a conundrum, for consumers as well as the economy.
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