Personal consumption expenditures are the key to any economic recovery in the United States.

Personal consumption expenditures represent 70% of our Gross Domestic Product. In other words, it represents 70% of all the goods and services produced in our economy each year.

This percentage was much lower 10-20 years ago when the manufacture of goods was a much higher percentage of our Gross Domestic Product. Because much of our manufacturing capacity has been shifted to overseas markets, our economy relies much more heavily on the U.S. consumer.

So any economic recovery requires a strong surge in consumer spending.

Personal consumption expenditures took a major hit in the last several months due to the downturn in the economy. However, spending did increase by .3% in May, 2009, the first increase in the last 3 months. But is that enough?

The President Obama administration appears much more confidant that an economic recovery is beginning. They feel that all their bailouts and stimulus plans are working.

For one thing, the major decline in home prices may be nearing an end. However, I don’t see any significant surge in home prices for a long time.

Here are some reasons why I don’t expect a major increase in personal consumption:

1. The increase in the U.S. savings rate will keep a lid on personal consumption. The savings rate has risen from a negative level during the housing bubble to 6.9% in May of this year.

Families cannot save money and increase savings at the same time unless there is an increase in personal income levels. Personal income levels have been falling.

This change in attitude by the U.S. consumer is a major change in trend. This trend will probably continue for years to come.

In the short term, this new trend will have a very detrimental impact on the U.S. economy. You can see this in the following chart. As the savings rate rises to almost 7%, Americans are allowing their personal consumption to fall through the floor.

Even though personal consumption expenditures have fallen to extremely low levels, it is being propped up by unemployment compensation. As you can see from the next chart, unemployment insurance claims have skyrocketed over the past year.

In most states, this cushion ends after 6, 9, or 12 months. Unfortunately, as these programs end, it will result in another blow to personal consumption.

3. During the housing bubble years, personal residences became an ATM machine for many families. As home values rose, homes were refinanced, resulting in higher levels of cash available to the consumer. Much of this cash was spent on “things,” increasing personal consumption expenditures.

Since home values have suffered a major decline and interest rates are now rising, this ATM machine is not available to most homeowners.

4. As home values have fallen, there is also a psychological impact. People feel “poorer” and cut back on personal consumption.

5. Oil and gasoline prices have risen sharply over the last few months. Although these prices are currently taking a breather, I expect that they will continue to rise in the long term. This takes another chunk out of personal consumption.

6. Food prices are rising which could result in a further hit to personal consumption expenditures. On June 10, 2009, an article in The Financial Times” stated:

“Almost unnoticed, agricultural commodity prices have returned to levels last seen at the start of the 2007-2008 food crisis, prompting concerns about a fresh rise in food prices.”

7. Today’s unemployment numbers clearly indicate continuing problems in our economy. As people lose their jobs, they must cut back on their personal consumption.

The bottom line is that we will not see a significant rise in personal consumption expenditures as long as these negatives exist.

As a result, I feel that our economy will continue to languish.

The huge amount of money the federal government is spending must eventually cause a short-term reduction in unemployment levels and an increase in economic activity.

However, as the economy attempts to recover, it will eventually be chocked off by rising interest rates.

As a corporate professional hoping to leave your corporate job, I feel you should strongly consider these economic projections. I don’t see this economy recovering to acceptable levels for a long time.

You have many alternatives as long as you have a job. If you follow in my footsteps, corporate professionals can develop a job backup plan and start training for an online work from home business.

Scott Hubbard has retired from 25 years as a Chief Financial Officer in Corporate America. He now enjoys teaching corporate professionals and network marketers how to apply attraction marketing online and how to generate free qualified MLM leads on the internet. 

He is happy to give a free consultation for those having a serious interest in being an entrepreneur.  You can reach him toll-free at 877-878-4036 or by email at Scott.Hubbard3@gmail.com.  You can learn more about Scott by going to his blog at http://www.YourGuideToRetirement.com.