Wednesday, November 19, 2014

Confidence in the Economy Grows as Holidays Near

The holiday season is nearly upon us and people are a little more optimistic about the economy then they were just a few months ago. People are slowly starting to feel good about their future prospects and the potential for their incomes. According to the Gallop Poll a -6 is a significant improvement over the -20’s experienced throughout the year. 

Economic confidence is a beneficial metric but isn’t a very conclusive one. Much of economic confidence is based in how people perceive the environment and their opportunities within it. New reports and the general impressions of reports does have an impact on economic impression (Barsky & Sims, 2012). Some have called positive economic beliefs part of our animal spirits. 

Animal spirits are more psychological images and impressions than objective data. If you buy more on days when you feel good than on days you don’t then this is your animal spirits coming to play. What we read and how we read the environment will naturally have some impact on our animal spirits. 

This perspective can add up to a lot over time. Cultural-ecological perspective across 45 countries has an impact on economic development (Chou & Loafsson, 2011). How we perceive our environment has an impact but that impact is not a one for one economic tally. Simply feeling confident about the environment may encourage people to spend more but may not impact long term growth. 

Positive consumer beliefs may be part of the holiday season or could a growing trend. As consumers improve their outlook for their own prospects they will naturally spend more over the holiday season. Hopefully this translates into greater sales and hiring throughout the year. Sometimes the economy has a self-fulfilling prophecy spirit where positive impression leads to sales and activity.

Barsky, R. & Sims, E. (2012). Information, animal spirits, and the meaning of innovations in consumer confidence. American Economic Review, 102 (4). 

Chou, L. & Olafsson, S. (2011). Confidence as an economic indicator: a cultural-ecology perspective. Brussels Economic Review, 54 (4).

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