Tuesday, April 28, 2009
What is a recession? What constitutes a bear stock market? In both cases, it's nothing more than perception. It's the collective belief by consumers and businesses alike that things are bad and getting worse. And it's mostly a self-fulfilling prophecy. Americans stop spending, corporate profits turn to mounting losses, and massive layoffs follow. And it's a vicious cycle. We therefore create the very things we fear most. When that happens, nothing can turn it around except a very different perception. The shifting sentiment that things are looking better.
Which brings us to a new ABC News/Wall Street Journal poll released Monday indicating that 50% of Americans now believe the country is headed in the right direction, versus just 8% in October, before the presidential election and three months before Barack Obama took office. Additionally, the Consumer Confidence Index released Tuesday showed a significant increase to 39.2% in March vs. 26.9% in February. Throw in Obama's approval rating, which hovers around 65%, and it's a pretty safe bet that Americans are starting to feel much better about the nation's leadership and the overall direction of the economy and the country.
When consumers start feeling better about things, they spend. It starts with little things like clothes, toys, books, etc. They take extra trips to the mall. Then they slowly return to big-ticket items. They buy electronics, cars, houses, take vacations. And when they spend, it fattens corporate earnings. And that leads to job growth, reinvestment and spending on capital improvements. Pretty soon, recession turns to prosperity. Of course, I'm over simplifying, and an economic recovery can take a long while to achieve any appreciable measure of growth. But all signs point to a bottoming, and that would mean the crawl back upward begins. Whether we experience a V, U or L-shaped recovery is anyone's guess. But it would appear that a recovery, however slow, is at least underway.
Obama's critics can bark as loudly as they wish and continue playing the partisan rhetoric game, but the simple truth is that his first 100 days have achieved major progress in turning around the economy, restoring consumer confidence, and curbing the hemorrhaging in both the banking and housing crises. Not bad for 100 days..