Economy growing but consumers go unrewarded

BASED ON THE data and consumer sentiment, it is possible to conclude that the Barbadian economy is nearing the end of its expansion cycle, as growth slows and consumer confidence falls. According to January to September 2024 data, economic growth was strong at 3.9 per cent, inflation fell to 2.4 per cent, and unemployment reduced to 7.7 per cent. Some Barbadians can still afford their daily expenses.

Some consumers, particularly those from lower and middle income households, are not benefiting from the robust 3.9 per cent economic growth. They face “income suppression”, that is, the income and wages they earn are insufficient to cover essentials, the expense of comfort, and the luxury items they wish to acquire.

The stagnation of living standards prevents them from fully experiencing the anticipated effects of an expanding economy. In general, consumers are not wealthier. A consumer becomes wealthier when they can easily pay their bills, afford health care, have more free cash to spend on goods and services, have greater borrowing power, and are financially secure in the future. Without an increase in salary or wages, lower prices, return on investments, and lower taxes will help increase an individual’s wealth.

Human development and productivity, as strong indicators of overall well-being or level of living, provide a more accurate picture of the standard of living than gross domestic product (GDP) does. GDP quantifies the entire value of all goods and services generated by a country over a specific time period.

Consumption, investment, international trade, pricing, and money supply are also useful indicators. It includes all expenditures on goods and services, including imports, net exports, investments, and personal consumption. The GDP, as a measure of economic growth, can be imprecise in assessing the overall health of an economy. A high GDP generally indicates a thriving economy, whereas a low GDP may suggest economic fragility.

A long and healthy life, knowledge and a good quality of living are the three main elements of human development for which the Human Development Index (HDI) summarises average achievement. Productivity assessments evaluate the output of a product relative to the input or resources necessary for its production. The input may be labour, equipment, or money. Productivity growth refers to the enhancement of the quantity of products and services produced with the same level of work, leading to increased salaries and enhanced job stability. It enhances consumer confidence, fosters economic progress, allows individuals to elevate their standard of living, and enables economies to prosper without excessive inflation.

Labour productivity is defined as the ratio of output to hours worked.

Enhanced productivity enables the completion of a greater volume of work within the same duration.

For example, labour productivity refers to the production generated per worker; if you produced ten tennis rackets in one hour last year but 15 in one hour this year, productivity has increased. A person who can finish his or her daily duties in five hours shouldn’t be trapped into an eight-hour workday.

Purchasing power

Five hours later the worker would most likely waste time, or be unproductive. An increase in output correlates with a greater contribution to the company’s profitability. The more companies produce, the more profit the corporation makes.

Income and wages should rise with an increase in labour productivity. When productivity rises, an economy can produce more goods and services with the same amount of effort, resulting in higher salaries and job stability. This essentially raises the value of labour in the production process, allowing for higher pay. Simply put, the more commodities and services a community produces with a given set of inputs, the higher its material standard of living. In terms of how this affects regular citizens on a daily basis, the most obvious result is that growth allows people to acquire more for less. A productive economy may generate more goods and services with the same amount of resources while using fewer resources. Increased productivity can result in greater pay, tax revenues, and job creation.

Policy changes are more reflective when customers can get more for less. Put another way, when people feel richer (have a higher standard of living), they are inclined to spend more. Consumer spending typically increases during economic booms due to lower unemployment and higher personal income.

Price increases and income stagnation will affect consumer purchasing power. Increased and increasing prices (inflation) will reduce household well-being, particularly for those who spend a bigger share of their income on food and housing.

Furthermore, earnings may not keep up with inflation, resulting in a decrease in household disposable income. As consumer spending falls, firms will see lower sales and higher inventories.

They will opt to curtail production and lay off some employees.

Consumers’ attitudes about the current state of the economy are reflected in their spending habits. Higher consumer confidence leads to less saving, implying that consumers would spend more, increasing economic production. Reducing direct taxes can increase consumer confidence.

Some government spending components have the potential to improve consumer confidence.

Governments can utilise fiscal and monetary policies to keep the economy stable and growing.

Governments may develop infrastructure and education to promote long-term growth and reduce poverty.

As consumer confidence rises, so does consumer spending, particularly in the retail and luxury goods industries. Consumers are more inclined to spend money on travel and other significant expenditures, such as homes. Improving consumer confidence represents a significant potential. A boost in company confidence may improve investment; a reduction in interest rates may stimulate higher business and consumer borrowing, resulting in increased investment and consumption. Tax cuts enhance consumption because consumers have more ‘disposable’ income.

Strong productivity increases wages since it increases the earnings that companies finally distribute to their employees. Reduced productivity prevents a better standard of life and salary increase. Increasing productivity is not simple.

Policymakers have to create long-term development plans in many areas, including technology, innovation, research and development, health, education, housing and transportation, in order to increase output. Labour productivity in the public and private sectors must be encouraged. Low productivity should be corrected; high production should be celebrated.

Dr Ankie Scott-Joseph, a lecturer at the University of the West Indies, Cave Hill Campus, is an economist and public debt management specialist.

Email: ankie.scott-joseph@cavehill.uwi.edu