As consumer confidence, a predictor of consumer spending, swings upward, retailers perform much better. Just consider all the home furnishing a new homeowner will buy. These include everything from window treatments to new furniture to new appliances. Subsequently, consumers push retailers into the black, pleasing investors and encouraging economic growth.
New home sales are up 12.5% nationwide from the year ago figure, indicating significant improvement in conditions and investor confidence over last summer. Much of this boost in consumer confidence has to do with gas prices at the pump having dropped significantly. Spending less than $3 per gallon of gas gives Americans more cash to spend on things they want, boosting confidence and retailer figures.
And it all comes out in the proverbial economic bathwater. Essentially a trickledown effect, the less people are spending at the pumps, the more they are pumping into the economy through retailers. In turn, consumer confidence surges and spending trends are more frequent and in larger volumes. And when demand at retailers is high, so too is manufacturing production, also down in August by half a percent.
Subsequently, homebuyers are encouraged to invest their money and buy new homes. But when new home sales wane, so too does consumer spending. And when consumer spending slumps, product demand and manufacturing output suffers and this is when employment rates drop. The converse is also true. It’s an interwoven web only as strong as its weakest thread.