According to Bloomberg, the Thomson Reuters/University of Michigan final consumer sentiment index rose to a three-month high in August. Although the rise in consumer confidence does not change the fact that economic growth is still lackluster, it is important in an economy that continues to rely heavily on consumer spending.
The Romney campaign and the GOP in general, have built their platform around the anger and fear many have because of the current economic situation. Although the actual status of the economy remains unchanged, the increased consumer sentiment indicates a declining fear of economic turmoil. If more Americans feel that the economic outlook is improving, it weakens the strongest aspect of Mitt Romney’s platform.
Although the political implications of consumer confidence are more black and white, the effect it has on the economic recovery is important. Between 1997 and 2007 personal consumption expenditures accounted for 81.3 percent of real GDP growth. Such a heavy dependence on personal consumption is undeniably problematic, but it is the economic reality at this moment.
If the economy is going to rebound in the near-future, substantial increases in consumer spending will likely be necessary. For economic growth to occur, business owners or ‘job creators’ need more than just reduced tax burdens, they also need demand for their goods or services.
The disappointing recovery is not simply because taxes and regulations discourage job creators from creating jobs, but because the fallout from the 2008 financial meltdown forced many individuals and families to immediately cut back on the personal consumption that the American economy relied on.