Good Question: What Is Consumer Confidence Based On?

MINNEAPOLIS (WCCO) — “Consumer confidence.” It’s a term we’ve no doubt heard thrown around in the last few weeks.

While economists have several theories about exactly why confidence is built or destroyed, can it ever be blamed on anything short of emotion?

Ups and downs, highs and lows — the market graph mimics the way you may have felt the day your first child was born. But, is the doom and gloom really the result of a sound, scientific analysis?

To find out if the fear is justified, WCCO-TV went to Dr. Anne McCarthy, the dean of the Hamline School of Business.

McCarthy said from an economic standpoint, she doesn’t think there’s reason for impulse.

“People who pay less attention to the gyrations in the market and the DOW are better off in the long run in terms of their return on investment,” McCarthy said.

For some, it may be easier said than done when the fear comes down to providing adequately for your family. Fear is in fact one of the most motivating of all emotions.

Dr. Michael Harvey of Eagan’s Argosy University is an expert in neuro-psychology and economic decision making. He said a lot of people’s decisions are based on emotions and evaluating risks.

“All of our decisions are based in emotions [The part of your brain used in decision making] is called the orbital frontal cortex. It’s where we regulate our moods and evaluate risk, so our emotional systems are tied right to the same area where we’re evaluating risk,” Harvey said.

Harvey said this strong tie to emotions is why the sell-off makes sense. As for how to overcome extreme emotional decision making, Harvey said you should try to avoid temptation and be aware of your brain’s natural tendencies.

“For short-term thinking, people really, if they’re going to be good at it, have to detach from their emotions and evaluate risk in a cool way,” Harvey said.

Dr. Harvey said another reason the anxiety spreads is because it’s literally contagious.

He said the concept of “mob mentality” is also born within the folds of our brains. According to science, we are made to think of ourselves as social beings, and the natural tendency is to follow the group.

  • RodneyC

    Consumer confidence should be based on the P-1, factor. The P-1 Factor is how much CASH, folks are walking around with in their pockets. Even the term disposable income , doesn’t cover that. The P-1 Factor even includes the people who must appear at the ATM, every! day to get their lunch money. If you wonder about my accuracy: in 2007. I had a discussion with a newly hired overnight currency trader from USBank, on the light rail on the way to the MOA. She was from Taiwan, and I expressed concerns about what the banks were going to do with all the properties, they would be stuck with, pretty soon. Consumer Confidence would be more in touch with reality, if the stock markets are regulated by the same State agencies that control Parimutual wagering at the horse race tracks.

    • ?

      I’m not sure I understand that. I’m pretty good about these things so I need, or would like, you to re-explain the connection. When I read the editorial, which wasn’t much of a story, I immediately thought of the Misery Index. The story itself is humorous since anyone who is reactionary or fearful in events like this ought not be anywhere near this game.

  • MIke

    I really have trouble with the statement;
    ““People who pay less attention to the gyrations in the market and the DOW are better off in the long run in terms of their return on investment,” McCarthy said.”

    I seriously doubt and am highly skeptical that anyone who is successful playing the stock market does so blindly. When you are up against computer trading by professional traders that know how to make a buck when the market goes up and heads down at rates faster than the speed of light, your playing on an uneven field. These same people control the markets today and change the course and direction at will, whenever they can manipulate gain. Trusting advise to stay the course with dollar cost averaging investment sounds like a great deal, and is to someone who makes money on my money regardless of the outcomes, but the temptation of greed is not ever going to willfully control the sound investments I can make without the risks and storied advice that money managers propose at my expense. Did it once, never again. Too many crooks, too many manipulative controls, and no regulatory oversight that benefits the little guy. I’m not interested.

    • Mark from Minnesota Tax Waste

      @Mike You just lost to much and now you are out of the game. The short sale is the only way to play these days, unless you are long term metals

      • Mike

        Short selling in the commodities markets is for the those that can afford to lose all your margin and some. I would consider doing it if I could sit in front and speculate full time. Sitting at work, listening to the markets fluctuate on this current roller coaster and playing the game is analogous to Russian Roulette. I bet many have lost their shorts over the last few days………………

        • ?

          You’re right on all counts with computer trades etc., no argument there. But, I would rather go long/buy and hold and earn 5% on AAPL rather than stash cash in a MMA where it earns less than 1%. Wtih the Fed’s interest rates moving forward, the savers are being heavily punished and forced into this market. Bad, since most people don’t understand it and have no where else to go. Commodities are a difficult market for newbies. They shouldn’t try, but I think shorting the dollar and buying commodities is the only forward looking plan that will succeed.

  • This is a story?

    Was this a story or just a secretary (Brady) taking shorthand? Come on you can do better.

    • Ralph

      I don’t care, she is HOT

  • Mark from Minnesota Tax Waste

    Sorry guys I have to be coming out now as I thought gayness could be cured and it can not so here I am. And by the way I am going to be voting Obama!

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