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Unpredictable Consumer Behahior - 10/24/14

Economics would be much easier if it didn’t involve the study of people.  While economic theory often revolves around the critical assumption that people are rational economic actors, the fact of the matter is that people are incredibly unpredictable. 

Take recent measures of consumer sentiment as an example – much of what we have heard about in recent weeks is ebola, Isis, volatile financial markets, Europe sliding back toward recession, and signs of potentially damaging deflationary pressures.  Despite that, the University of Michigan’s consumer sentiment index for October rose to a reading of 86.4, the highest reading since July of 2007. 

There are a number of reasons for this, including recent reports on the labor market, which indicate that job growth is accelerating and the number of layoffs is decreasing.  Job gains nationally are on pace for their strongest year since 1999 according to Bloomberg.  Job quality has also been improving a bit, helping to generate stronger wage gains.  On top of that, gas prices have been sliding, which also increases consumer spending power.  That expanding spending power is coming at a great time for retailers – just before the holiday shopping seasons.

Anirban Basu, Chariman Chief Executive Officer of Sage Policy Group (SPG), is one of the Mid-Atlantic region's leading economic consultants. Prior to founding SPG he was Chairman and CEO of Optimal Solutions Group, a company he co-founded and which continues to operate. Anirban has also served as Director of Applied Economics and Senior Economist for RESI, where he used his extensive knowledge of the Mid-Atlantic region to support numerous clients in their strategic decision-making processes. Clients have included the Maryland Department of Transportation, St. Paul Companies, Baltimore Symphony Orchestra Players Committee and the Martin O'Malley mayoral campaign.