The US economy is faced with a magnificent challenge heading into the New Year.

As the struggling dollar, the War in Iraq, the sub-prime crunch, and prices at the pump dominate our airwaves, many Americans tend to forget about the end result of it all. Life is becoming impossible for the average American. Or what I chose to refer to as the fuel of the public enterprise. It has never been so expensive for him to simply maintain a healthy lifestyle and ensure the same for his family.

Costs associated with doing so are growing consistently by almost every conceivable metric. Pick one: airfare, apparel, childcare, college tuition, food, health care, and medication. All are steadily increasing in price and contributing to a rapidly rising cost of living while federal data reveals that income inequality is possibly higher now stateside than it was just before the stock market crash and Great Depression of 1929.

Overall cost of living in the US is reaching paramount heights. This is in turn spreading the paychecks of American consumer thinner than ever before and facilitating an increased reliance on credit to maintain their current lifestyles. Supporting this statement The U.S Department of Commerce, Bureau of Economic Analysis (BEA) announced this year that Americans on average had a negative savings rate for 2006.

The average American now carries four credit cards with access to approximately $19,000 on all cards total. In addition, the Federal Reserve reports that the Median U.S. household income is currently $43,200 and the typical family’s balance is nearly 5% of their total income. As the dollar gets stretched further than ever before, the implications of American consumers using a greater portion of that $19K are enormous. As the percentage rises, so does the possibility of economical turmoil.

Simply put, the American consumer with less dough in his pocket puts a massive strain on every facet of the economy. This obviously includes the stock market. Lack of disposable income and growing consumer debt put negative pressure on virtually every aspect of the public enterprise.

From the retail marketplace (particularly non-essential goods), to the banking/financial sector, the cash-strapped consumer has negative implications all around. This also gives birth to a situation in which the individual American investor can afford to invest less in the equity markets, further hindering stock market growth and overall future investment.

As we move into 2008 with the highest hopes, but yet slightly lower expectations than in years past, one thing is for certain: the cumulative action of the US consumer during '08 will have more influence in the future of our economy than in any year prior.

Labels: Cost of Living, US Economy