Finally! A piece that is positive on the economy and without left-handed “compliments.” Consumer spending increases.
Let’s get this straight. Spending disposable income is good for the economy. Let’s take a look at a supply chain below:
- Raw materials manufacturer
- Transport company #1
- Subassembly manufacturer
- Transport company #2
- Product manufacturer
- Transport company #3
- Transport company #4
- Retail store
Of course, in some cases like Wal-Mart, things like the Wholesaler, TC #4 and Retail store are inside the same company, but the steps are still there. There are other exceptions as well, but this list is pretty accurate most of the time.
In the case of increased spending, everybody gets more business, everybody gets more money and everybody pays more taxes. Taxing that dollar as it moves through each step means it is taxed over and over again, both in corporate taxes and payroll taxes from the workers. This is where the increased tax revenues comes from.
The other important part is whenever a company hires an unemployed worker, that worker converts from being a tax consumer to a tax creator. Instead of consuming $300 a week in unemployment benefits, they turn into someone who pays taxes. Don’t look at just what he makes, look at the total swing in taxes, then multiply that by the thousands for everybody who made it off the rolls.
The other news is, it takes time for things to move through the supply chain. The increase in demand at the retail store won’t be felt at the manufacturing level until a couple of months from now. Companies like several months of increased business before they look at hiring. This plus the delay in the supply line will always mean that hiring will always lag the economic indicators. Considering the time of the year, things will really be jumping around Christmas, on top of the normal holiday rush. Normally, manufacturing peaks at this time of year for Christmas. Additional demand from today’s spending should extend the manufacturing sector busy time until January or so at the minimum.