Since sales of vehicles increased, we can say that households are starting to spend on durable goods.  What is the most likely impact of this on the economy?

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pohnpei397 eNotes educator| Certified Educator

The sale of new cars, or at least orders for new cars, is one leading economic indicator.  Cars are durable good and orders of durable goods are one thing that can indicate what the economy is going to do in the relatively near future.  If orders for new cars are rising, it is one indicator that implies that economic expansion is likely.  If people are going to be more likely to buy “big ticket items” there will be more production of those items and more people will be employed in that production.

If people are buying new cars, it also implies that economic growth will happen in one other way.  The fact that people are buying new cars means that they are generally optimistic about the economy.  It means that they think that they can afford to spend because they will be having higher incomes in the future.  Consumers who are confident are likely to buy more things.  Consumer spending is by far the biggest component of GDP.  Therefore, more consumer confidence leads to more consumer spending and a higher GDP.