What might break this cycle? The opposite of uncertainty is confidence; the belief that things will improve and that the future is bright. We have recently seen signs of hope. In particular, among us I have seen multiple signs, ranging from highly data-driven to highly anecdotal that indicate a recovery may be well underway.
Let's start with the hard data that the economy may be improving. The end of September marks the end of another fiscal quarter, meaning that "earnings season" was upon us in October. Earnings season happens every quarter as companies announce to us (in particular their current and potential investors) their performance for the prior three months. In recent quarters, we have seen a general improvement in earnings, but those improvements have mainly come from cost reductions.
However, in the recently completed quarter, while the trend of improving earnings continued, this time, much of those improvements could be attributed to revenue increases as opposed to cost-cutting. This was particularly evident in the airline industry, a sign that businesses in particular are loosening their purse strings for business travel.
Airlines are not the only beneficiary of increased business (and personal) travel. Early last month, I attended a Hospitality Industry conference at Cornell University in Ithaca, NY. Current and projected data for the industry was presented and indicators are pointing up in all areas. In particular, hotel occupancies are up, as are hotel rates. Such indicators point to a strengthening of the economy via expenditure of more discretionary dollars.
These discretionary dollars are especially important in our consumer-driven economy. I can think of nothing more discretionary than the purchase of pumpkins at Halloween. For a number of years, I have worked at my church's pumpkin patch, which sells pumpkins in the pre-Halloween season. My family and I have always worked the same day and time (Sunday from 2 p.m. to 4 p.m.) and this year we worked this slot for four consecutive weeks. I was amazed by not only the amount of traffic, but also the amount of the average purchase, this year as compared to the last two years. Granted, the weather has been much better this fall than last, but while that might explain some of the increased traffic, it does not explain all of it, and certainly not the higher expenditures per visitor.
Based on the hard data from earnings and hospitality and the anecdotal evidence from the pumpkin patch, it seems like consumers are feeling that the worst is behind us and more willing to spend. Hopefully, we will remember Halloween 2010 as the Great Pumpkin Indicator of good times ahead.
Dr. Richard M. Franza has a Ph.D. in Operations Management and is on the faculty of the Coles College of Business at Kennesaw State University where he chairs the Department of Management and Entrepreneurship.