If you are developing a strategy for consumer products for 2005-2006 period, iProceed's analysis shows that American consumers will continue to be under pressure and will not be increasing their spending as evident from the following indicators:
- Gross tax receipts continue to decline to due to drop in average income of Americans
- GDP growth is still not robust enough to give a strong rebound to the economy and result in an explosion of jobs (critical to consumer spending)
- Federal deficit continues to be at worrisome levels as shown below. This means that taxes will definitely rise in 2005, further restricting consumers' disposable incomes. (In an excellent analysis by Bruce Bartlett in Fortune, a senior fellow at the National Center for Policy Analysis, he shows that taxes will go up because of higher federal spending , particularly on homeland security, most tax cuts enacted earlier are unlikely to be made permanent due to high deficits, and as I said above, federal revenue is at very low levels). Plus, higher interest rates and oil prices will make life difficult for American consumers.
Implications for businesses
- Cut costs as much as you can since the demand will grow for lower priced products
- If you have high-end products that you do not wish to lower prices for, find new markets for these products
- The sectors of the economy that will continue to be strong include mass merchandise, construction, and homeland security