Consumer Spending: Not Dead. Yet.
http://money.cnn.com/2007/05/02/news/economy/consumer_spending/index.htm?postversion=2007050215

Despite the fact that the US housing industry is struggling and the gas prices soaring, the current spending level within the US economy has not dropped as expected. This is surprising to many people especially when a recent government report said that the spending level is at the weakest point in the last six months. However, according to economists, the government report is not convincing enough to prove that spending level is down. Economists say that same-store sales will give a more clear and accurate understanding of the current spending level. With the said, in the near future the US economy should expect to receive a boost from the back-to-school sales, which is the second biggest sale season after Christmas. There are also two other factors, income levels and jobs, that determines how much households are spending. According to this article both these factors are currently at a stable rate, which would accommodate for the inflationary gas prices. As great of news this may be for the US economy in the short run, the same cannot be said long-term wise. According to a senior economist, the shocking spending level in the US could potentially lead to a huge problem in the future. While many of the US higher-tier stores have experienced an increase in sales, the lower-tier stores such as Wal-Mart have not been doing too well in with their sales. This means that these soaring gas prices are having a bigger financial impact on the low-income families. In order for these low-income families to meet the cost of their daily necessities, they are forced to use their home equity. While this strategy is working short-term wise, long-term success is not guaranteed.

Relation to chapter 6 - Consumption, Saving

I think the US economy is in a terrible situation because with the slumping housing market and inflationary gas prices, the US economy is currently quite unstable even though the consumption level does not justify that. In the article, economists heavily rely on the same-store sales, the comparison between sales of store that have been opened for one year or more, to determine the spending level of Americans. With that said, the fact that American consumption level remains to be quite high means that there is an increase in sales in stores. In my opinion, that is quite deceiving considering that US stores receive a huge boost in sales from major sale seasons, such as back-to-school sales and Christmas. These sales can only assist the US economy so long and eventually their weak housing industry and soaring gas prices will catch on to them. In fact, it already has with low-income household. Even though sales do not show a drop in consumer spending, low-income families are struggling to manage their spending level. Due to the fact that majority of low-income families are unable to save, since they tend to have a higher APC compared to the higher classes. With that said increased prices in goods actually puts them in a situation where they are dissaving. One of the ways the government can aid these group of people is to reduce interest rates, which would put more money into their pocket. Currently the middle and higher class are isolated from this problem, which would explain why American spending level is remaining at a high level. However, as long as gas price continue to inflate with the housing market struggling, the middle class will eventually show more resistance to spending, which would hurt the US economy even more.