Treating Economic Pessimism – Fight the Scourge of Post Crisis Relapse Disorder

Do you find yourself waking every morning, expecting to read about another U.S. recession? Do the words “economic recovery” leave you feeling anxious and apprehensive? Do you find that you prefer The Rolling Stones’ “Paint It Black” to “Oh Baby (We Got a Good Thing Going),”or The Beatles’ “The End” to “Getting Better”?  Do you find yourself eschewing upbeat-sounding TV shows like Happy Days and Good Times in favor of darker-sounding fare like Breaking Bad, Lost, and House of Cards?

If you answered ‘yes’ to any or all of these questions (OK…maybe the last one is asking too much), you may be suffering from PCRD, or Post Crisis Relapse Disorder. PCRD is a U.S. economic mental affliction that many investors have developed since the financial crisis. It leaves the afflicted with a feeling of constant dread that the economy is poised to tumble into recession at any moment. Its symptoms include chronic market pessimism, a failure to recognize fundamental improvement, shriveled spending, vacation aversion, and spare-cash hoarding.

PCRD was first recognized by practitioners of behavioral finance in the years after the financial crisis and Great Recession. It’s understandable, these experts say, that PCRD suffers see apocalypse continually around the next corner; the crisis and resulting recession were so severe that they have remained in the forefront of people’s memories. This feeling taps into a deep-seated human tendency to assume that the future will resemble the recent past – and if that recent past was chaotic and marked by imminent economic collapse, then the near future probably is too.

The good news is that there’s good news! There is a cure for PCRD! It’s stronger economic growth and it’s coming. That’s the best palliative for PCRD and increasingly positive economic news can help PCRD sufferers shake the worst of their symptoms.

Growth in consumer spending in the fourth quarter of 2013 (through November) appears to have surged above 3%, which is its best reading in years. Measures of consumer confidence like the Conference Board and Bloomberg’s Index of Consumer Comfort are showing multi-year highs. And increasing consumer activity spills into similarly upbeat business indicators. Industrial production is up, output is above its pre-recession peak, and capital spending is increasing as well.

All this translates into increasing GDP growth. In fact, 2014 probably stands a good chance of seeing at least one quarter with growth at 4%. State and local government layoffs are no longer a drag on the economy; meanwhile, state budgets are in the best shape they’ve been in for years. A federal budget deal puts a cap on potential disruptive uncertainty. Add to that a U.S. manufacturing renaissance, relatively inexpensive energy prices, and a good deal of pent-up consumer demand, and we’re looking at the possibility of ending PCRD in our lifetime…or at least for the next few years.

So if you, or someone you know, suffer from Post Crisis Relapse Disorder, take heart. Things are getting better! By keeping track of the data and staying up-to-date, even the most hard-core PCRD suffers will soon start perking up. You can read more about PCRD, as well as some thoughts on China and their audit of local-government debt, in our most recent economic insights.

 

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