Americans Think the Economic Chalice is More than Half Full

As Americans we can be a skeptical crew about a whole lot of stuff. One thing we seem to feel good about is future opportunities. According to a recent Gallop Poll 28% think the economy is good, 28% think it is poor, 51% believe it is getting better and 45% feel that it is getting worse (1). For seven straight weeks the consumer economic beliefs have been in the positive providing good news to those who feel the economic chalice is over half full.

The numbers may depend on who you are, your income and education level, as well as your personal disposition in life. Those who are in fast growing industries who are finding their job prospects and income rising may feel more optimistic than those who are negatively affected by shifting economic activity. If your in the wrong occupation and see your prospects dwindling there isn't much to look forward to as a growing economy isn't going to directly benefit you.

The same can be said with those who have not either learned a skilled trade or obtained a meaningful degree with market relevance. Education must match market needs if it is to effectively support one's family and provide future opportunities. Failure to enter into an education and/or learning program will leave some in low wage and low movement occupations competing against outsourcing and automation.

We can't ignore that our personal disposition has something to do with how we interpret information. For example, if we are generally a positive person we are more likely to see positive movement in the economy while if we are more negative we are more likely to see the negative aspects of the economy. Many of us self-select the type of information we see in order to confirm our pre-existing beliefs.

Regardless of the many reasons why a person sees the cup as half full or half empty the movement from a negative perspective to a positive perspective does highlight that perceptions are slowly changing. We find through the past year people have been flat and in the negative ranks. As positive communication in the media and among social networks rose people also started to become aware of the growing economy. That could just push consumer spending upward next month that helps support the economy further creating a self-fulfilling prophecy.

Consumer Spending Rebounds Over the Holidays

Consumers are all smiles as they open their checkbooks and walk into the stores in search of great deals for the holidays. After stretching Black Friday beyond its traditional one day bonanza they have shocked us again with their spending vibrancy.  According to a report by the U.S. Census Bureau retail and food service sales improved 7% beyond last month and 5.1% when compared to last year. The numbers took into account seasonal differences, holiday sales and trading-day differences.

Consumers are buying more because they feel optimistic about the economy and their living costs are declining on a number of fronts thereby leaving them more discretionary income.  The extra money didn't  sit around long and got swept up into the latest deals and products that improved higher retail and food buying rates. Dining and shopping have made a comeback.

Consumer spending is one facet of a stronger economy. To have a fuller recovery it is necessary to improve manufacturing and exportation. Spending should be balanced with savings and investment to create longer term growth. Improved consumer spending numbers are great but they are not the whole story.

Lower oil prices, hiring trends, manufacturing improvements, and general optimism all seem to be working together.  As each of the levers moves up and down the American economic engine appears to have gained a net step forward.  Multiple indicators show a general trend of improvement that will continue into the mid-term.

Consumer spending is improving with retailers and restaurants receiving the majority of benefits. Improved spending parallels improved moved in consumer sentiment and opportunity.  As consumers feel that their future opportunities are improving they are willing to horde less and spend more. Good mood leads to increased spending. Hopefully, the trend will continue across multiple fronts  to create broader economic impact. 

http://www.census.gov/retail/

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.

Read the Gallop Poll

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).

Improving Consumer Confidence and 3.5% GDP Comes with a Warning

The economy took a jump from July to September as Gross Domestic Product (GDP) calculations rose 3.5%. This is great news for those hoping to finish off the last of the recession and move onto more prosperous times. This improvement is the largest in a single quarter since 2003 and parallels higher levels of consumer enthusiasm. Positive news also comes with a warning to redirect focus to balancing budgets, encouraging long-term economic growth, and reducing income disparity.  

To add to this positive news the University of Michigan’s consumer confidence index also jumped to 86.9 in October when compared to 84.6 in September.  With GDP expanding and consumer confidence rising few can argue that the world’s super power isn’t regaining economic ground. 

Measuring economic growth often rests on imperfect numbers such as GDP that can create improper assumptions among decision-makers. GDP is seen as the total market value of the goods and services produced by a nation over a certain period (Kolb, 2008). That number includes all final goods and services generated by economic resources within a nation. 

GDP product doesn’t consider the production of American citizens but any business or entity that works within a nation. It is an important distinction, as the global world can allow companies to do business within the U.S., but be owned by foreigners that still contributing to local growth.

Despite its wide reaching use GDP is not a perfect measurement. There is a fundamental difference between wealth creation and increased production. According to Strow & Strow (2013) GDP can encourage lawmakers to push for increased government spending but ignore wealth creation as a primary function of economic expansion. 

As an imperfect measurement the improvement of GDP and increasing consumer confidence are positive markers for the potential of future growth. Growth years are also times when the strategies of lawmakers and business leaders should also change to make such growth long lasting. Unfortunately, too many wait until another crisis occurs before refreshing their thinking.  

When the economy improves officials sometimes focus on maximizing additional spending to balance old budgets and encourage pet projects. With the ending of unprecedented government asset purchases, historic low inflation, and a few deficit improvements it is important to focus on reasonable budget reduction plans, improving economic trade conditions, and the reduction of income disparity. The underpinnings that lead to growth should not be ignored for short-term budget advantages.

Kolb, R. (2008). Gross Domestic Product (GDP). Encyclopedia of business ethics and society. 

Strow, B. & Strow, C. (2013). Gross actual product: why GDP fosters increased government spending and should be replaced. The Journal of Private Enterprise, 29 (1).

GDP Rises and Consumer Confidence Recovers

The Bureau of Economic Analysis released optimistic data showing a Gross Domestic Product (GDP) increase of 4.2% in the output of goods and services. The new numbers are a windfall compared to the previous 2.1% decline in the first quarter of 2014. The new release of information uses more accurate numbers than previous measurements which help the business community make investment decisions.

The new numbers show an increase in nonresidential fixed investments with smaller numbers in private inventory investment. Other factors influencing the higher numbers were exports, personal consumption expenditures, local government spending, and residential fixed investments. Confidence in the economy may be encouraging purchasing behaviors, state spending, and business investments.

Consumer confidence and consumer spending are associated in economic theory (Ludvigson, 2004). As consumers become more confident about their employment prospects and ability to earn a living wage they will naturally spend more of their hard earned capital on products that improve GDP. The same psychological principles apply to business and government.

We can see this operate in the decline and growth cycles of consumer spending and consumer confidence. Consumer spending dipped .1% in July after rising .4% in June (1). Despite the dip, consumer confidence is rising and future estimates may adjust consumer spending upwards. The polling company GfK showed that despite a consumer confidence decline of -2 in July the numbers moved up to +1 in August (2).

Economic data rests on a battery of measurements to determine future market prospects. If the consumer confidence and consumer spending association is correct we should see an increase in consumer spending numbers for August. A slow beginning to 3Q doesn’t necessarily mean it is going to end slowly as housing and investments recover to support future GDP growth. As with all projections, confounding variables impact the final results. Time is the greatest predictor.

http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm

Ludvigson, S. (2004). Consumer confidence and consumer spending. Journal of Economic Perspectives, 18 (2).