What A Change In Sentiment Can Do
I get that very American, upbeat response when I ask people how things are going. “Things are great,” “Couldn’t be better.” It’s all part of the essential American character. By nature, we tend to be optimists, seeing the glass as half full. And that robust, positive outlook continues today, but with some reservations.
Americans have been through a lot this last few years, from the Pandemic and its economic lockdown, which brought the country to a nearly complete halt, to this bothersome inflation. It’s been a time when health and finances have been at the forefront of our minds.
So yes, most of us believe that the worst is behind us and we’ll have better times ahead, and that’s reflected in the statistics. The University of Michigan tracks our sentiment month, and the latest reading by the students at Michigan shows that Consumer Sentiment was at 59, up nearly 20% from the low last summer. Things are looking better. But from a longer perspective, American Sentiment has been in a long-range downturn. When the University began its Sentiment Index, it set it at 100, thinking it was an excellent spot to establish an American Sentiment Index. At just 59 on that Index, we’re much less optimistic than Americans were years ago.
And this has a profound impact on the economy. We, the consumers, are the economy. At least two-thirds of the economic activity in America comes from consumers. Those everyday shoppers, like you and me, go out and buy things. When we’re upbeat and expansive, the economy booms. When we’re downbeat and cautious, we go into a bust.
Let me give you an example of how our attitude affects the Macro Economy. The last time we had an extended bout of inflation like we’re facing right now was half a century ago in the 1970s. Just like today, the average America was getting squeezed, the cost of living was rising, and our paychecks weren’t keeping pace.
You might have expected that was when consumer sentiment declined, and people hunkered down until the Inflation Storm blew over. And in a sense, you’d be right. After the second recession in less than ten years, when the 1979–80 slowdown occurred, the Sentiment Index was down in the 50s, like it is today. The only other time, besides today, that Sentiment in America has been that low.
And then something remarkable began to happen; pundits called it “Morning In America.” It was a complete turnaround in the economy due mainly to a change in American Sentiment. Ronald Reagan was President, and the Morning in America slogan came from a series of television commercials during his campaign.
As Reagan liked to say, he merely got out of the way of the American people, reducing regulation and taxes and letting them get back to work. The transformation was electric; the Sentiment Index rocked from the low 50s to the mid-70s in a year. Stock Brokers changed their investment strategies overnight. We went from describing how best to preserve capital to devising ways to grow your investments.
Yes, we still had inflation, but the business books changed from how to spend less to how to leverage Other Peoples’ Money (OPM). There was a sudden realization that borrowers would pay back their debts with dollars worth less (after the decline due to inflation). Attitudes had changed. The question was no longer how to survive; the question now became how to prosper in difficult times.
I can’t help but see many parallels between those times and now. Back then, we had the seemingly endless Viet Nam War, which drained our nation’s fortunes and cost young people’s lives. Today we have the Ukraine War, which drains our wealth, if not our young lives. Both then and now, there was a growing lack of faith in the Dollar, as then the threat came from OPEC and today from BRICS. Both eras saw scandal in Washington, then with President Nixon, and today with President Biden and his son. And, of course, today, we have been through the most significant health Pandemic in the nation’s history.
Then, as today, we turn to the American People, as consumers and hopefully as producers, to bring economic recovery. Note how closely Wall Street watches every indication of consumer vitality. From which movies we watch to which beer we drink. These are not just trend-setting fads; they are hard evidence of America’s willingness to set a new direction.
This nation can endue inflation, political scandal, and even disease. But there is one thing we cannot overcome, and that would be a loss of confidence in our fellow citizens. It’s time for us to stop looking at others, especially our leaders in Washington, and grab the reins of power ourselves. After all, those 500-plus elected officials are supposed to represent you and me, not to rule over us. As we change our attitude, we will change this country.
I’ll know that we have fully recovered when that Sentiment Index rises.
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