Question

Please I would like a brief summary of the article below and a critical Graphical or analytical analysis for the same article below. to do it use economic tools developped in microeconomics or concept used in microeconomics or economic. Please what information do you need? I gave you everything the article and the instructions ( summary and a critical analytical analysis for the article)

This is the article down

Weak Consumer Spending Presents a Puzzle

U.S. retail sales fall for third straight month

By

Josh Mitchell and

Sarah Nassauer

Updated March 14, 2018 3:29 p.m. ET

WASHINGTON—The U.S. job market is booming and workers’ paychecks are growing thanks to a tax cut and raises. But Americans hunkered down on spending last month, a puzzle for an economy that leans heavily on their willingness to consume.

Sales at U.S. retailers fell 0.1% in February, marking a three-month slide. Much of the decline was tied to lower sales of cars and weak gasoline prices. Americans also reduced shopping for furniture, health products, groceries and electronics.

February was when many Americans saw the first tangible evidence of the $1.5 trillion tax cut that President Donald Trump signed into law late last year. Tax withholdings fell, increasing take-home pay.

That boost—along with high stock and property values, and a labor market that has added an average of 242,000 jobs a month over the past three months—is expected to prod Americans to go out shopping. The hope is that, in turn, factories will ramp up production and economic growth will pick up. So far, that hasn’t happened.

“The consumer genuinely is taking a little bit of a breather,” said J.P. Morgan economist Michael Feroli. He struggled to explain the latest dip but said the ingredients for stronger spending and economic growth are still there. “We think the fundamentals are still supportive of better growth ahead.”

Retail goods make up a big portion of Americans’ spending and are thus a key barometer of the economy’s health. The lower spending has led economists to downgrade expectations for economic growth in the first quarter. J.P. Morgan now expects gross domestic product to grow at an annual rate of 2% this quarter, while the Atlanta Fed’s GDPNow model projects 1.9% growth. Each previously projected 2.5% growth.

The economy grew 2.5% in 2017, in large part due to strong consumer spending, and for a stretch last year it hit a 3% rate.

Economists said temporary factors may have held back consumers of late. Some families are receiving tax refunds later than they did in previous years as the Internal Revenue Service takes more time to combat fraud. Even relative to last year, when a 2015 antifraud law took effect, refunds have been slower, said Pooja Sriram, a Barclays economist. The delays disproportionately affect low-income households who are more likely to spend refunds quickly. Those delays, which were separate from lower withholding due to the tax cuts, could lead to a boost in household income—and spending—later this spring once refunds are delivered.

Also, consumers who boosted spending last fall to repair and replace property damaged by hurricanes in the South may have temporarily cut back since then. Economists expect the storms’ effect on spending to fade.

And while the tax cuts showed up last month in the form of bigger paychecks, the effects will likely be spread over the year. The nonprofit Tax Policy Center estimates that, considering only the individual income-tax provisions, 65% of households will get a tax cut averaging $2,180 in 2018. Some households will get that over the course of the year through with lower withholding, but some won’t get it until early 2019.

Americans haven’t cut spending across the board. By one measure, retail spending looks stable. When excluding cars and gasoline—for which spending can swing wildly month to month—retail sales climbed 0.3% last month. Americans boosted spending on building supplies, clothing and restaurant outings.

And reports from some individual retailers suggest the outlook is better than the data suggest.

Retailers mostly reported improved sales over the holiday season and early months of this year, noting that strong consumer spending and efforts to compete online show signs of paying off. Target Corp. said earlier this month sales in existing stores rose 3.6%, the third consecutive quarter of growth. Walmart Inc., Best Buy Co. , Macy’s Inc. and Costco Wholesale Corp. reported stronger sales, as well.

“Our numbers have generally picked up over the last several months,” as more shoppers flock to stores and the overall economy is strong, said Costco Chief Financial Officer Richard Galanti on Tuesday. He said it’s unclear if lower withholding rates are boosting sales.

But many retailers are struggling to adapt as shopping shifts online. Toys “R” Us Inc. is preparing to liquidate all of its U.S. stores, according to people familiar with the matter. Earlier this month J.C. Penney Co. announced job cuts as it works to shore up profits while investing in new store formats and e-commerce to grow sales.

Some analysts predict fuller wallets. Shoppers will have around 3% more money to spend this year, said Michael Lassar, retail analyst at UBS. “Housing and health care [costs] have risen rapidly the last few years and that continues, but what is new is withholding has gone down and pay gone up, so people are spending more,” he said.

Write to Josh Mitchell at [email protected] and Sarah Nassauer at [email protected]

Answer 1

Summary:

Although US economy is flourishing and people are earning more than before both because of tax cuts (a total of of the $1.5 trillion), income hikes, high stock and property values and labor market that has added an average of 242,000 jobs a month over the past three months, but the average spend of Americans is going down leading to lower consumption.

Immediate affect of this can be seen in the US retail sales which has slided down now for consecutive 3 months which is majorly attributed to sale of cars, furniture, health products, groceries and electronics. Retail goods make up a big portion of Americans’ spending and are thus a key barometer of the economy’s health. It was expected that more production will happen in the economy due to the increase demand as there will be more money in US economy but the same is not reflected in the last 3 months progress. The predictions of economic growth have gone down from projected 2.5% to 2%, which was 3% in last quarter of 2017.

Temporary factors may have held back consumers of late.

• Some families are receiving tax refunds later than they did in previous years and this delay disproportionately affect low-income households who are more likely to spend refunds quickly.
• Consumers have spent considerably last year to repair and replace property damaged by hurricanes.

Retail spending looks stable if cars and gasoline are excluded. Americans boosted spending on building supplies, clothing and restaurant outings. Also while reporting the sales there have been companies like Target Corp., Walmart Inc., Best Buy Co. , Macy’s Inc. and Costco Wholesale Corp. who have stronger online presence reported stronger sales while others like Toys “R”, J.C. Penney Co. may have a fall in sales but they are now investing in new store formats and e-commerce to grow sales.

Economic Analysis:

There are economic theories that justify the above behaviour of the US consumer:

1) While we see that most of the industries saw a growth, cars and gasoline industry saw a fall. The main reason behind it is the weak gasoline prices. Here this is a clear example of Substitution and Income Effect. Though the income increased, the quantity demanded of one good went down while the others increased. Because price of one good (gasoline) is higher in this case.

2) And to answer how gasoline prices impacts the sales of cars, cars and gasoline are complementary goods, which means, when the price of one good rises, the demand for other complementary good falls and that can be clearly seen in this case where when the gasoline prices are high the demand for cars have gone down.

3) Another are to note here is that while some retail houses claim higher sales, the other are reporting low. Hence in order to be in competition companies have to adopt to newer technologies which is going online in this case. The ones that have online presence are least impacted.

4) It is also mentioned in the article that Consumers have spent considerably last year to repair and replace property damaged by hurricanes, which implies two things that they will spend less on that this year unless hurricane strikes again and to ensure that they have enough money that time they are saving the money from the increased pay checks rather than spending it.

5) We may also analyse from the above information that the consumption will not happen unless the income is realised by a consumer which is the case with households who have still not received tax refunds.