Little Orphan Annie was clearly an American. In the play and movie bearing her name, Annie sang these words in her signature song, Tomorrow:

 

The sun’ll come out tomorrow,

Bet your bottom dollar,

That tomorrow there’ll be sun!

 

Just thinkin’ about tomorrow,

Clears away the cobwebs,

And the sorrow ‘til there’s none!

 

So ya gotta hang on ‘til tomorrow.

Come what may.

Tomorrow, tomorrow.

I love ya tomorrow!

You’re always just a day a way!

 

Annie’s song captures the American spirit: tomorrow will be better.

 

Americans Are Optimistic

When comparing Americans to other nationalities, the Americans typically emerge as the most optimistic.

 

Psychologist Stuart Vyse, who wrote the book “Going Broke: Why Americans Can’t Hold On to Their Money,” explains what is different about Americans. He says, “Basically it comes down to a simple sense of overconfidence about the future, which is inherent in our nature.”

 

Further, Vyse says, “…we live in a country where it’s patriotic to spend, where our economy depends on spending ... it’s a habit, it’s what we do for entertainment, it’s how we fill our time.”

 

And, to help Americans shop, the country has built more Cathedrals to Consumption (shopping malls) than any other nation on Earth. Americans invented recreational shopping, as author Vyse noted when he said, “It’s what we do for entertainment.”

 

Consumer Spending Is Important to the U.S. Economy

In America, roughly two-thirds (66 percent) of the country’s Gross Domestic Product (GDP) is driven by consumer spending. The other one-third of the economy is driven by a combination of business spending, government spending and export revenues.

 

In contrast, most European countries rely on consumer spending for a far smaller portion of their economic growth. Consumer spending represents from about 48 percent to 55 percent of Gross Domestic Product in most developed countries around the world.

 

Americans Have Huge Mood Swings, but They View the Future Optimistically

On one hand, Americans see their current plight as the worst of conditions. On the other hand, they see better times just around the corner. People of other nationalities don’t seem to have these large mood swings, as some measures of consumer sentiment show.

 

Consumer Confidence Swings Widely

Recently, The Conference Board’s measure of Consumer Confidence collapsed to 38 in October from 61 in September. A year ago – October 2007 – it was 95. October’s Consumer Confidence Index was at its lowest level in October since the Conference Board began keeping statistics in 1967, and the drop was the third worst after sharp declines in 1973 and the 1969-1970 period.

 

So, based on consumer confident levels, there is a black cloud hanging over most Americans’ heads.

 

Current Financial Plight Won’t Hang Around

In a recent Financial Times / Harris poll, consumers in six countries – the UK, the U.S., France, Italy, Spain, and Germany – were asked to rate the performance of their country’s leader in handling the global financial crisis.

 

• 40 percent of all Americans said the handling was “terrible.” This was by far the worst rating given to any government by the poll respondents. Further, only about 10 percent of the respondents said the government’s handling of the crisis was “good,” a lowest number of “good” ratings of any of the six countries in the survey.
  
  (We find this interesting, since the U.S. government reacted first and fastest to stem the financial crisis that seems to have engulfed most of the world.)

On the other hand, the Financial Times / Harris poll respondents were asked this question, “In the next year, do you expect your standard of living to become better, worse, or neither?”

 

• In a stunning reversal of mood, just over 20 percent of all Americans said they expected their standard of living to improve in 2009; this was the largest percentage of consumers who see better conditions “tomorrow” versus any of the other countries surveyed.

• On the flip side, just over 40 percent of Americans see their standard of living deteriorating next year; this is the smallest percentage of consumers who see worsening conditions of any of the countries in the poll.

• At the bottom of the list are French consumers: only about 5 percent expect their standard of living to improve, and nearly 80 percent expect their standard of living to decline. (Disclaimer: our daughter and her French-born husband lived in France for ten years. During our visits, we noted that the French aren’t happy unless they are complaining about something.)

Clearly, American consumers are more optimistic than people who live in any of the other five countries surveyed. That’s the nature of an American: be optimistic.

 

Stock Market Views Are Optimistic

Despite a period where stock prices have fallen lower than Pamela Anderson’s neckline and appear to be headed to (her) bust, American securities research analysts – those folks who make stock recommendation, essentially stock-pickers – have the fewest “sell” recommendations of research analysts of any of five other countries. The Financial Times surveyed stock recommendations of research analysts in six countries: Norway, Germany, UK / Ireland, France, Japan, and the U.S. It found that only 6.7 percent of all stock recommendations by U.S. securities analysts were “sell.” In contrast, French analysts found reasons to dislike 22.6 percent of all the stocks they follow.

 

In a related story in the Financial Times, the newspaper noted that “even with a global recession looming, research analysts continue to issue far more buy recommendations than sells in the major investment market.” Essentially, the article stated that research analysts need to learn how to accentuate the negative. That will be difficult for the Americans, who are culturally optimistic.

 

In our Wall Street days, there was an old adage that described Americans who traded in the market: memories are short, and hope springs eternal. That, too, salutes the optimistic American.

 

Why are Americans so optimistic about the stock market? Most of the world remembers the famous stock market crashes – 1929 and 1987. But there have also been stock market panics, crashes, and slumps in 1812, 1837, 1857, 1873, 1903,1914, 1917, 1930-32, 1937, 1946, 1962, 1966, 1973-74, 1976-78, 1998, and, of course, the dot.com meltdown of 2000-2003. Unless investors believe that American style capitalism is dead, they will be back in the stock market – sooner rather than later. The stock market anticipates an economic recovery by six to nine months.

 

No Seismic Shift in Consumption

“Seismic shift” – that’s how one consumer electronics executive – Brad Anderson, CEO of Best Buy – has described the recent change in consumer spending patterns. His comments received plenty of press: he was widely quoted as speaking for the entire retail industry.

 

Unfortunately, while Anderson’s comments may apply to the consumer electronics industry, they don’t apply to many categories of retail, including jewelry.

 

In its current form, the consumer electronics industry has been around for less than four decades. Sure, there were radios nearly a century ago, and television’s commercial birth came just after World War II (roughly 60 years ago). But today’s consumer electronics industry – with its multi-faceted gadgets and techie toys – has only been around since the 1970s. It was popularized by Wards’ Loading Dock, the forerunner of Circuit City, a company that’s now in bankruptcy due to declining sales and large financial losses.

 

In contrast, the jewelry industry has been around for at least 50,000 years. New evidence seems to suggest that it could have originated perhaps 100,000 years ago.

 

The U.S. jewelry industry is doing better than the consumer electronics industry. For the ten months ended October, consumer electronics sales in the U.S. are up 1.7 percent year-to-date. In contrast, jewelry sales are up 2.2 percent year-to-date through September (jewelry sales are reported with a one-month lag versus major categories such as electronics). For Anderson’s company, Best Buy, the news is much worse: same-store sales fell by 7.6 percent in October, after falling by 1.3 percent in September.

 

The table below summarizes some recent sales comparisons for major retail categories, as defined by the Department of Commerce.

 

Source: US Dept. of Commerce

 

While October results won’t be reported for another couple of weeks, we know jewelry sales were dismal. Further, indications are that November jewelry demand was weaker than October. But one or two months don’t make a trend.

 

Consumers Aren’t Destitute

On one hand, consumers are stretched with debt, and thus they are increasingly forced to live on their income, especially since homes are no longer a cash ATM machine (home equity loans are very difficult to obtain in today’s market). Credit card companies and banks have lowered lending limits, reducing the availability of credit on both equity lines and credit cards.

 

On the other hand, the Federal Reserve says the total amount of cash in household checking and savings accounts currently exceeds $11 trillion, up from just under $9 trillion in 2001.

As the Fed works its magic and pumps more liquidity into the banking system, consumers will feel more comfortable that the worst of the financial crisis has passed. Based on the Financial Times / Harris poll, consumers expect improved financial conditions sometime in the first half of 2009. That’s no surprise: most economists say that the Fed’s efforts should begin to have a positive impact on the American economy sometime in November. That’s the benefit of the U.S. government reacting first and fast.

 

Americans Are Born To Spend

Several years ago, we completed a study to see how long “system shocks” affected consumers’ spending. We updated that study this year. Here’s what we found:

 

• System shocks differ in intensity, and they differ in the factors that caused them, so it is difficult to make statements which are overly general. However, we have found that it takes roughly six months for consumers to return to their former levels of spending, after suffering from a system shock. That’s not good news for the 2008 holiday selling season, but it is good news for the second half of 2009.