Unemployment and its Effect on Consumer Spending Term Paper

Unemployment and its Effect on Consumer Spending - Term Paper Example Unemployment and its effect on Consumer Spending Unemployment has been a major issue that has been prevailing in every country’s economy since the global economic recession hit the world during the year 2007.This is calculated by the dividing the total number of unemployed population with that of the employed ones in the country. Unemployment within a country can bring upon many different negative issues within an economy and this could further deteriorate the country’s performance. Consumer spending is an issue that is considered to have an inverse relationship with unemployment. This relation can be graphically presented as follows: Consumer spending is the total aggregate demand of goods and services within an economy. Consumer spending, in simpler terms, can be referred to as the expenditure made by an individual. Consumer spending usually gets affected by different factors prevailing within an economy. There are many different factors that can vary the level of consumer spending. Unemployment has brought upon sev ere effects on consumer spending within the entire world. An increase in the level of unemployment was seen when the recession hit within the 2007, although this recession is considered to be the second recession within the same decade i.e. 2000 – 2010, it had severe negative effects. The reason that the 1st recession was less damaging was because during that period i.e. 2001-2002, people carried out their respective expenditure trends because they availed the mortgage facility. On the other hand, consumer spending was severely affected during the second recession period i.e. 2007.... Although the Bureau of Labor Statistics within the United States showed a reduction in the unemployment rate i.e. a fall of 0.4%, people still find it really difficult to find jobs within the country. According to many different commentators, the figures provided by the Bureau of Labor Statistics do not prove to be closer to reality. According to these commentators, an average unemployed worker approximately needs 33 weeks to find a job for himself. Such fall back and deteriorating facts contrast the figures provided by the Bureau of Labor Statistics and it is for this reason that many commentators have considered it to be bias (Jacob, 2011). The recent unemployment rate within the United States can be graphically shown as below (WSJ, 2012) This increase in the rate of unemployment has led to a reduction in the consumer spending level within the United States. Unemployment and consumer spending have contrasting issues i.e. they are inversely proportional. An increase in the level of unemployment would definitely reduce the level of consumer spending within an economy. Consumer spending is a necessary element that is required to stimulate an economy and it is for this reason, many governments try to put in proper monetary and fiscal policies that may increase consumer spending in order to reduce inflation and maintain other economic factors within a country. The United States consumer spending level has not been pleasing during the past few years. According to the US Commerce Department, the consumer spending has risen by just a minute 0.1%. This increase has been considered to be really low as opposed to the predictions made by the US Commerce department. The United States