Businesses have to get really careful about what discounts and promotions that they offer as consumers cut back on their spending due to falling incomes and rising prices (particularly for energy). Department of Commerce has some bad news for businesses, particularly those that sell consumer products, as shown in the chart below:
Other important statistics from the data are:
- Personal consumption expenditures (PCE) decreased $53.3 billion, or 0.7 %, the largest drop in three years. The decline was led by a cutback in spending on automobiles and other big-ticket durable goods. This has been a result of falling income of Americans.
- Spending on durable goods declined by 5.9%. For non-durables such as food and clothes, spending dipped by 0.3%.
- Private wage and salary disbursements decreased $2.7 billion.
- Goods-producing industries' payrolls increased a meagre $0.5 billion; manufacturing payrolls were unchanged.
- Services-producing industries' payrolls decreased $3.2 billion.
- Government wage and salary disbursements increased $1.4 billion meaning that the government spending continues to be high and will not be helpful in reducing deficit; thus creating a situation in which rising taxes and interest rates will continue to stop the economy from picking up steam.
How to respond if you are a business leader?
- Improve your cost position by benchmarking against your competitors, both domestic and international.
- Invest in R&D and innovation to introduce less expensive products that will appeal to consumers strapped for cash.
- Do what furniture stores, car dealers, and electronics retailers have been doing: offer big-ticket items on credit by partnering with a lending organization.