The Economy Is on the Upswing! Or So We Believe
by Vicky Schubert
When you read this headline from a May 20 Associated Press report, "Fed sees economy improving, but not soon: Outlook for rest of year downgraded, but expect some activity to pick up," which part of it gets your greatest attention--the glee or the gloom?
There's no denying the intimate connection between the economy and human psychology. At any given time, there seems to be a collective optimism/pessimism pendulum that determines whether we're experiencing expansion or contraction. As John Maynard Keynes wrote, "Economic activity can only be taken as a result of animal spirits--of a spontaneous urge to action rather than inaction. If the animal spirits are dimmed and the spontaneous optimism falters. . . enterprise will fade and die."
So, among all the economic indicators that seem to be headed in the right direction at the moment, perhaps the most promising sign for the economy is the third consecutive monthly improvement in the Consumer Confidence Index. That's right, confidence; a stock that accumulates not in our bank accounts, but between our ears.
The Consumer Confidence Index is a national gauge of economic optimism produced by the Conference Board. The index is based on a simple, 5-question survey in which 5,000 households are asked to rate their impressions and expectations regarding current and future business conditions, current and future employment opportunities, and their own personal income levels. With a better than 80% track record of correlation between the Index and subsequent spending patterns over two decades, it's a measure that businesses watch with great interest.
It's also a measure that illustrates how, to some extent, we humans create our own reality. One of the chief characteristics of our recent economic difficulties has been the psychological stand-off between consumers afraid to spend and businesses afraid to invest. As our confidence grows even slightly--based on our own individual perceptions of the current reality--businesses actually begin to invest again, validating our confidence and stimulating further economic growth. That makes us even more confident; businesses invest more; and we're off to the races.
The beauty of systems thinking is that it gives us the perspective to recognize how large-scale dynamic forces flow from the accumulation of individual perceptions and actions. That very recognition reinforces our commitment to strategies that build confidence and trust at the interpersonal level, because those are the strategies that ultimately benefit everyone.
Vicky Schubert is marketing director at Pegasus Communications.