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February 3rd, 2010 9:00 AM by David W. Welch
Phil the groundhog has a real future as an economist; both try to predict the future. Some things are predictable like Winter which, by the way, lasts until Spring every year so there are always six weeks left after groundhog day. People are somewhat predictable, but not completely. Psychologists try to understand why people do what they do, but are often surprised. One thing I have noticed is that people get tired of the bad economic news and pessimissm. I have written several times before that economics is about supply and demand. Supply is something you can easily inventory. You can go out and count your widgets, and you can measure the cost to produce that inventory. Measuring demand is a little trickier. Demand gets into the psyche of the consumer, and the only pure metric of demand is the actual purchase of goods and services. That only measures the past, so how do we predict the future?
There is no crystal ball that answers what future demand will be. If there was, I am sure the banks, wall street and the US automakers would not have been looking for bailouts this past year. We do have the consumer confidence index which has been a somewhat reliable indicator for future purchases. The latest index just came out last week stronger than expected at 55.9. That was the third month in a row marked by an improvement in a quarter that saw a 5.7% growth in the economy. Of course, much of the growth is not sustainable being fueled by federal stimulus money. The third quarter also posted a modest expansion as fiscal and monetary policy started taking hold. So, is consumer optimism helping create the expansion or is the expansion generating greater consumer optimism? Either way, with two quarters of growth behind us, it is time for the consumer to take the lead again. Consumer spending is the biggest and most sustainable driver of our economy, and I don't want to wait six more weeks for Spring.
Orlando Real Estate, David Welch Real Estate Optimist, As Seen On HGTV's House Hunters