American Consumers Are Spending More - But Carefully

Three girls shopping
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American consumers are back!

That's the upshot of the latest report on growth in gross domestic product, or GDP, released by the Bureau of Economic Analysis on July 30. Reporting that the U.S. economy expanded at an annualized rate of 4 percent in the second quarter of 2014, the federal government report shows that even after a lackluster, snow-covered first quarter, the economy has made up its losses -- and then some.

"Personal consumption expenditures" -- spending by the American consumer, who we've often been told accounts for 70 percent of the country's economy -- helped to pull the economy out of its slump in the second quarter. (So give yourself a pat on the back). And yet, the 2.5 percentage points of consumer spending growth reported by the bureau still pales in comparison to the growth exhibited in such categories as "real nonresidential fixed investment" (up 5.5 percent), and "real exports of goods and services" (up 9.5 percent).

So what's up with that?

You Better Shop Around

A recent Gallup poll gives us a few clues. It turns out the American consumers who are spending again are doing so very carefully. Check out these results on how American shoppers, polled by Gallup, say they spent their hard-earned cash from mid-May to mid-June:
  • 83 percent of shoppers polled said they purchased generic of store-brand (private label) goods.
  • 61 percent say they "shopped around," visiting different stores to buy different items, depending on who had the best sale.
  • 59 percent used the Internet to research where such deals could be found.
  • 58 percent used coupons.
  • 40 percent bought "it's new to me" goods -- aka used items.
Waste Not, Want Not

Meanwhile, Gallup noted several trends suggesting that American shoppers are keeping tight leash on discretionary purchases:
  • 55 percent said they held themselves to a "strict budget" when going out shopping.
  • 52 percent agreed with the statement "I only shop for exactly what I need."
  • 75 percent labeled themselves "careful about how I spend my money."
In contrast:
  • 27 percent said that they laid out more than a week's pay on any single purchase during those four weeks.
  • 31 percent reported that they indulged in "shop therapy," aka shopping for fun.
  • 38 percent admitted to making an "impulse purchase."
The Gallup data gives a pretty clear impression that Americans are still feeling pretty miserly about their money. Perversely, that could turn into a problem over time.

After all, it's sometimes noted that what can be good for individuals (saving money, shopping for bargains and spending below your means) can be bad for the economy at large. If everyone in America suddenly starts shopping smart, saving savvily and generally pinching pennies till they scream, then who's going to be left to do all the extra spending necessary to keep the economy growing?

If we want 4 percent GDP growth to become the new norm in America, chances are, more shoppers will need to loosen their death-grips on their wallets first.

Motley Fool contributor Rich Smith is embarrassed to admit that he's probably "part of the problem" of shoppers not spending freely enough.

Name Brand or Generic? 10 Items Where Choice Pays Off
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American Consumers Are Spending More - But Carefully
Dried herbs and spices have identical ingredient lists. The only difference is the method used for drying them, and if you're not able to easily determine that information, the generic version is as good as the name brand. The exception is from a store that does the drying for you –- but you'll usually be paying a stiff premium for that.
They're just trash bags, but you want to be choosy about what you throw your garbage in. With generic bags, you generally have to stop filling them about two-thirds of the way full or they'll easily rip, whereas with a higher quality bag, you can fill it to the rim without ripping. Thus, it's usually worth paying as much as a 50 percent premium per bag to get the name brand version. I personally use Glad ForceFlex bags, which, when bought in bulk, meet that 50 percent threshold.
The petroleum industry is so heavily regulated that the gas available at one station is, for all practical purposes, the same as the gas at another station. Let the price lead you when it comes to fueling up.
Generic paper products, such as toilet paper, paper towels, and paper plates, have a tendency to shred and fall apart at the least opportune times. To clean up a mess, you'll often have to use twice as much. And with paper plates, you often have to double-layer them if you don't want your food to slide off the plate. Why not just pay a little more to get durable products and create less waste? The cost-per-use is a lot lower.
This is a perfect example of how comparing ingredients and nutrition facts makes all the difference. Almost always, you'll find that they're identical among different brands of sugar and salt. There's no reason to go for a name brand here.
When you're in a situation where you need a baby wipe, you want to be able to grab something that works to clean up the mess. Generic baby wipes are often dry right out of the package and sometimes fall apart mid-use. My solution is to skip both the generics and name brands and use a squirt bottle of a gentle cleaning solution along with a bunch of soft washcloths. They always work, and they're reusable – just toss them in the laundry.
The difference between electronic cables of the same type is negligible. Much like gasoline, the specifications on these cables are so tight that there's little variation between cable brands. Just choose the cable that meets your needs in terms of length and adapter, and buy the one with the lowest price.
Off-brand electronics are more likely to have poor customer service support in the event of a failure, as many generic electronic companies are based overseas and have unresponsive departments. Before you buy electronics, make sure the customer service department for that company has good marks, or you may find yourself with a $1,000 black box you can't return or do anything with.
For most types of breakfast cereal, such as bran flakes, corn flakes and so forth, the generic cereals are indistinguishable from the brand name ones. If you often start your day off with a bowl of cereal and a healthy splash of milk, give the generic version of your favorite cereal a try. Such cereal is often sold in bags, so save your old box and put the new bag inside for easier storage.
The big difference between a good diaper and a bad one is the dreaded "blow out" – when a baby's outfit quickly goes from "cute" to "disaster." Most comparison studies find an enormous difference between generics and name brands; check out this disposable diaper comparison review for details. (Better yet, go cloth. We love them.)
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