Financial Literacy - How to Prosper
How the economy affects your pocketbook

Economists have surmised that the U.S. economy may be officially out of the doldrums, but American consumers don't feel it.

And until consumers do feel it, the economy can't really be considered to have recovered.

Consumption, in large part, drives the economy, so when the economy is rolling along, in general, consumers are doing their best to drive it forward.

"The economy needs to make things possible for you and make your life livable in the present and give you really good prospects for hope and growth in the future," says Peter Rodriguez, associate professor of business administration and associate dean for international affairs at the University of Virginia's Darden School of Business.

"You have to have the sense that the American dream is possible. You have to be living reasonably comfortably. Income levels have to be high enough that you have the opportunity to enjoy other parts of life," he says.

As the economy is largely made up of the individual fortunes of Americans, consumers cannot do well without a prosperous economy and, in turn, the nation cannot prosper without a thriving populace.

But not everyone is positioned to benefit from a growing economy. For some who are marginalized due to poverty or lack of education, a rising tide won't raise their prospects.

Look to these economic measurements to discover how consumers are faring in the economy and also whether the economy is contracting or expanding.


Gross domestic product, or GDP, is a measure of the output of goods and services produced in the United States. The report comes out quarterly from the Bureau of Economic Analysis.

"The traditional measure of the economy has been growth in GDP and growth in economic output," says Mike Schenk, vice president of economics and statistics at the Credit Union National Association.

But as yardsticks go, it's kind of unwieldy.

"GDP is too coarse because it is just a measure of the volume of output of the economy overall. Early in the fall we heard a lot of talk about the recession being over and technically that may be true because GDP has begun to rise," says Rodriguez.

"That is the equivalent of saying that sales have stopped falling, but that is really not that heartwarming -- we have laid off a lot of people and they are not benefiting from the growth and are remaining outside what the economy can provide for them," he says.

GDP is expected to increase over the coming months, but that won't necessarily mean that the American people are experiencing a growing economy. Instead, it may mean that businesses are simply restocking.

"GDP and manufacturing are likely to have an uptick just basically based on the fact that many businesses have run down their inventory leading up to the crisis and now need to replenish their stock. So it's not based as much on end-user demand as it is based on a replenishment of inventory," says Kieran Osborne, co-portfolio manager at Merk Investments. "Although we will have an uptick, I don't think it will be sustainable economic growth going forward."


Personal income

Personal income and outlays are measures of how much people make and spend.

High individual incomes mean that average consumers can afford to do what they do best -- consume. High personal incomes also make people feel good about the future and their future prospects -- at least as long as inflation isn't too high.

Unfortunately, a rip-roaring economy may not be enough to raise incomes across the board.

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