Since the economy woes began over one year ago, the employment rates have remained high and people have modified their purchases accordingly. In order for the economy to grow, people need to spend money but since things are uncertain, many people are not spending as much money. People are making adjustments to spending habits because of the economic instability.
This reluctance in spending is evident in the quarterly results for both Wal-Mart and Home Depot. Both companies recorded second quarter profits that were better than expected; however, it appears that these increases were not due to increased sales but lower prices. This is indicative that people are still being very cautious with their money.
People are also deciding that items that were once considered a necessity like microwaves or high speed internet may be less of a necessity in these cash-strapped times. This depends on the age group being questioned — older people feel that landline phones are important while younger people find them unnecessary. Consumers are determining which things can be discarded to save money while keeping up quality of life in this economy.
The revenue crush applies to states as well; many states have increased cigarette taxes. In New York State, the excise tax for cigarettes is the highest in the country but people who smoke are now travelling to other states to purchase cigarettes. While the customers are out of state, they are also making other purchases which hurt the convenience stores that typically sell cigarettes. These taxes may not apply to smokeless cigarettes at this time so this phenomenon is not happening with the sale of these items. Cost consciousness is causing significant alterations in behavior to save money in this instance.
While the economy is in flux, people are evaluating current purchases and selecting the best way to get their money’s worth. Once the economy improves, people will change their behavior.
