Two reports released back to back in the past two days concerning the economy, when taken together, suggest a crazy cycle of destruction for consumer spending.
First, CNN reports that many people shop as therapy when they are feeling down.
The researchers concluded sadness can trigger a chain of emotions leading to extravagant tendencies. Sadness leads people to become more focused on themselves, causing the person to feel that they and their possessions are worth little. That feeling increases willingness to pay more — presumably to feel better about themselves.
The second report I noticed on CNN reported that consumer spending slowed down at the end of last year. This is because consumer confidence is down, people are afraid the economy is going to turn so they try to save more, and with mortgage rates going up people have less to spend on shopping.
The report on consumer borrowing was the latest evidence that economic activity was slowing at the end of last year as households were struggling with a prolonged slump in housing and a severe credit squeeze which has prompted banks to tighten their lending standards.
My hypothesis: People shop more when they are depressed. A recession and depressed economy, with loss of jobs and higher strains financially will cause people to spend more. They will be temporarily happy with their new purchases. Because they have no income they will shop with credit cards. When the bill comes they will become depressed. So, they will have to go out and buy more. Because the used most of the income to pay off that credit card bill, they will have to make these new purchases on a credit as well. That will be okay because their purchases will make them happy for a bit…
