Are Lower Prices Encouraging People to Spend?

12.09.08 | Consumerism, Money | 2 Comments | by junger

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It is time for savers to pay more attention to prices. That assumes savers are still interested in saving, but frustrated with ever lower interest rates.

In a depressed economy like we have in the United States, low interest rates should increase borrowing, spending and then jobs.

It should, but it may not. For example, low interest rates may encourage existing home owners to refinance at lower interest rates rather than encouraging those who are renting to buy a new house. In the case of refinancing, there will be few jobs created; in the case of a new house there will be construction jobs.

Those who refinance and save with lower monthly payments have more money to spend which might add to new spending. I say might because lower interest rates mean lower earnings for savers, which will cut their income and discourage spending as well as saving.

Right now, lower interest rates are not generating much spending, just lots of talking and proposing.

Low interest rates need to finance borrowing where something actually happens like building a new factory or a new house. Lending transactions that generates more schemes to buy low and sell high will not generate jobs.

Low interest rates are only one potential change that can help revive spending. Lower prices on goods and services can do that as well.

Just as lower interest rates can put people to work, lower prices get people to buy more, which means more work, more production of goods and services, followed by more jobs and more income.

Lower prices also translate into personal savings. Low gas prices help us save as individuals, but also generate mass savings that supports spending in other sectors.

There is other regular and discretionary buying that has potential for savings. Try the grocery store where savings on week-in and week-out buying can easily translate into four figure savings over a year. I never buy cereal, chips, crackers, or most prepared food unless it's on sale.

Yesterday, the local grocery had an end of aisle display announcing chips at 2 for $7. Chips on sale are supposed to be 2 for $5, but worse I took a bag down to check the size and found 10.5 ounces instead of 11.5.

I walked away, which we all realize is a tiny gesture in a mass market, but I still have my $7 bucks. In a computer age, the wholesalers back at the warehouse know exactly what the larger market thinks of their new price.

If others pay more attention to pricing and show more resistance, it will translate into price cuts and personal savings. We can also realistically hope it will work to revive our declining economy.

Fred Siegmund covers America's jobs as part of work doing labor market analysis and projections for a client base of recruiters, trainers and counselors. Visit him at www.americanjobmarket.blogspot.com

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