Ellison Chair in International Floriculture
Ellison Chair in International FloricultureTeaching, Research, Extension and Service

Bernanke comments on happiness

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An excerpt from Ben Bernanke’s speech at the University of South Carolina Commencement Ceremony, Columbia, South Carolina, May 8, 2010:

Notwithstanding that income contributes to well-being, the economics of happiness is also a useful antidote to the tendency of economists to focus exclusively on material determinants of social welfare, such as the GDP. GDP is not itself the final objective of policy, just as an increase in income may not be a good enough reason for you to change jobs. Obtaining broader measures of human welfare is challenging, but not impossible…

But even though GDP or income should not be the only goal of our strivings, we can go one step further and recognize as well that happiness itself, at least to the extent that the term is associated with immediate rather than long-lasting feelings and emotions, should not be our only goal either. Remember that I began by distinguishing between happiness and life satisfaction. Happiness is just one component of the broader, longer-term concept of life satisfaction, and only one indicator of how the fabric of our lives is being shaped by our choices and circumstances.

I am reminded of a story about Abraham Lincoln. According to the story, Lincoln was riding with a friend in a carriage on a rainy evening. As they rode, Lincoln told the friend that he believed in what economists would call the utility-maximizing theory of behavior, that people always act so as to maximize their own happiness, and for no other reason. Just then, the carriage crossed a bridge, and Lincoln saw a pig stuck in the muddy riverbank. Telling the carriage driver to stop, Lincoln struggled through the rain and mud, picked up the pig, and carried it to safety. When the muddy Lincoln returned to the carriage, his friend naturally pointed out that he had just disproved his own hypothesis by putting himself to great trouble and discomfort to save a pig. “Not at all,” said Lincoln. “What I did is perfectly consistent with my theory. If I hadn’t saved that pig, I would have felt terrible.”

The story points out that, sometimes, happiness is nature’s way of telling us we are doing the right thing. True. But, by the same token, ephemeral feelings of happiness are not always reliable indicators we are on the right path. Ultimately, life satisfaction requires more than just happiness. Sometimes, difficult choices can open the doors to future opportunities, and the short-run pain can be worth the long-run gain. Just as importantly, life satisfaction requires an ethical framework. Everyone needs such a framework. In the short run, it is possible that doing the ethical thing will make you feel, well, unhappy. In the long run, though, it is essential for a well-balanced and satisfying life.

Confidence is climbing

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The Conference Board Consumer Confidence Index™, which had improved considerably in April, posted another large gain in May. The Index now stands at 54.9 (1985=100), up from 40.8 in April. After two months of significant improvements, the Consumer Confidence Index is now at its highest level in eight months (in Sept. 2008, it was at 61.4).

This is a big enough bump in consumer attitudes that we can be pretty sure it’s not just a temporary blip. Although consumer confidence isn’t the only thing to worry about, it was the collapse of consumer spending that pushed us over the edge (the housing crash itself did not send us into recession). Now we’re likely to see an improvement– albeit not a return to the exuberant spending of 2005 — but a measured increase in spending.

Consumer spending rebounds

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The economy contracted at a 6.1% annual rate in the first quarter, which was a little more than the 4.6% decrease in real GDP expected by economists. The best news in the B.E.A. report report was the rebound in Personal Consumption Expenditures during the first quarter. Consumer spending grew at 2.2% during the first quarter (see graph above) following two quarters of negative growth (-4.3% in 2008:Q4 and -3.9% in 2008:Q3), and was just slightly below the 2.27% average growth since 2001.

REUTERS — There were some bright spots in the report. Consumer spending, which accounts for over two-thirds of U.S. economic activity, rose 2.2%, after collapsing in the second half of last year. Consumer spending was boosted by a 9.4% jump in purchases of durable goods, the first advance after four quarters of decline.

WSJ — GDP acts as a scoreboard for the economy by measuring all goods and services produced. Its biggest component is consumer spending, which accounts for about 70% of GDP. First-quarter spending increased 2.2%, after dropping 4.3% in the fourth quarter.

Hopefully, a good portion of this increase in consumer spending was in the lawn and garden category. As you probably saw in the Making Cents sales poll, 46% indicated that March sales were higher than same-month sales in 2008, 4% indicated they were the same level, and 50% indicated fewer March sales than last year. This is consistent with my conversations across the country as well.

Be sure to complete the April poll on the right side of the page.

Consumer confidence is climbing

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The Conference Board Consumer Confidence Index™, which had posted a slight increase in March, improved considerably in April. The Index now stands at 39.2 (1985=100), up from 26.9 in March. The Present Situation Index increased to 23.7 from 21.9 last month. The Expectations Index rose to 49.5 from 30.2 in March.

Says Lynn Franco, Director of The Conference Board Consumer Research Center: “Consumer Confidence rose in April to its highest reading in 2009, driven primarily by a significant improvement in the short-term outlook. The Present Situation Index posted a moderate gain, a sign that conditions have not deteriorated further, and may even moderately improve, in the second quarter. The sharp increase in the Expectations Index suggests that consumers believe the economy is nearing a bottom, however, this Index still remains well below levels associated with strong economic growth.”

Consumers’ appraisal of present-day conditions improved moderately in April. Those claiming business conditions are “bad” declined to 45.7 percent from 51.0 percent, while those claiming business conditions are “good” increased to 7.6 percent from 6.9 percent. Consumers’ assessment of the job market was somewhat mixed. The percentage of consumers stating jobs are “hard to get” decreased to 47.9 percent from 48.8 percent in March, however, those saying jobs are “plentiful” edged down to 4.5 percent from 4.7 percent.

Consumers’ short-term outlook improved significantly in April. Those anticipating business conditions will worsen over the next six months declined to 25.3 percent from 37.8 percent, while those expecting conditions to improve increased to 15.6 percent from 9.6 percent in March.

The employment outlook was also considerably less pessimistic. The percentage of consumers anticipating fewer jobs in the months ahead decreased to 33.6 percent from 41.6 percent, while those expecting more jobs increased to 13.9 percent from 7.3 percent. The proportion of consumers anticipating an increase in their incomes edged up to 8.0 percent from 7.8 percent.

Conflicting consumer confidence reported for January

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Two separate indexes are maintained regarding consumer confidence. One is reported by the Reuters/University of Michigan Surveys of Consumers and the other by the Conference Board.

The Conference Board Consumer Confidence Index™, which had decreased in December, inched lower in January and continues to be at a historic low. The Index now stands at 37.7 (1985=100), down from 38.6 in December. The Present Situation Index declined slightly to 29.9 from 30.2 last month. The Expectations Index decreased moderately to 43.0 from 44.2.

HOWEVER, the University of Michigan Index of Consumer Sentiment was 61.2 in the January 2009 survey, just above the 60.1 in December but substantially below last January’s 78.4 and the cyclical peak of 96.9 set in January 2007 (what a difference a couple of years makes!). Presidential honeymoons have typically translated optimistic expectations for policy changes into early gains in consumer confidence, and the recent surveys indicate a small gain since the November low of 55.3. The Index of Consumer Expectations, a closely watched component of the Index of Leading Economic Indicators, was 57.8 in January, just ahead of the 54.0 in December and well below last January’s 68.1and the January 2007 cyclical peak of 87.6.

Regardless of your index of choice, consumers are not optimistic heading into spring. That’s why our flowers, plants, and trees are so important in terms of being the antidote for the doom and gloom. Sooner or later, the money from increased saving is going to start burning a hole in people’s pockets and we need to be ready when it does!

Sway: The Irresistible Pull of Irrational Behavior

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Recently finished the book entitled “Sway: The Irresistible Pull of Irrational Behavior.” A quick read that makes some interesting points about irrational behavior; something I knew little about of course!

The main point of the book is that we all act irrationally from time to time (some of us lots of the time) and there are predictable forces that cause us to act irrationally including the following:

  • Loss aversion – this is a form of playing not to lose, making decisions in order to cut our losses, or avoid further losses.

  • Commitment – this is our tendency to hold fast to our course of action in the face of accumulating losses. Their example: Steve Spurrier and the Gators. When Spurrier came to UF in the early 90’s the SEC was a grind-it-out conference where coaches played, conservatively ( i.e. not to lose). Spurrier brought in the Run-N-Gun and started whipping the rest of the old, storied SEC programs. In response, the other teams stayed committed, and stuck even harder to their old models. And the Gators kept winning…much to the chagrin of us UT alums.

  • Value attribution – we attribute value to people or things based on quick impressions. In other words, if the right people like something we attribute greater value to that thing than if the wrong people like it.

  • Diagnosis bias – once we diagnose a situation we see the world through the lens of that diagnosis and all of reality conforms to our bias.

  • Fairness perception – we’ll often act against our own best interests if we feel that we are being treated unfairly. There is a cool experiment he talks about involving two subjects. Someone offers them a sum of money, let’s say $100. One person gets to divide it any way they want and the other person can decide to accept or reject that division. If the second accepts they both get the money per the division by the first. If the second rejects, they both get nothing. Most of the time the first person divides it 50-50, the second accepts and they walk away happy. But, when the first person makes an imbalanced division – let’s say he keeps $70 and offers the other $30 – in pretty much every case the second rejects it. In either case, whether it was a 50-50 or a 70-30 split, the second person would have come out to the good, but in the second case they rejected their own gain because of the fairness perception.

  • Altruism-Pleasure conflict – people will perform better for altruistic motives than for rewards. In other words, if someone does something for altruistic motives and then you come back and offer them a reward for doing the same thing, you will often find them losing motivation and/or performing worse. You gotta read that chapter to understand how it works.

  • Group Conformity – when in group settings, people tend to stifle their own opinions, often when their own opinions are patently correct and the groups are patently false, to go along with the group.

Want to hear more from one of the authors himself? Click on the video below (it is preceded by a short ad).

http://www.hulu.com/aol/http%3A%2F%2Fvideo%2Eaol%2Ecom%2Fpartner%2Fhulu%2Fbusiness%2Dbook%2Dbriefs%2Dbusiness%2Dbook%2Dbriefs%2Dsway%2Dby%2Dori%2Dbrafman%2Dand%2Drom%2Dbrafman%2Fbw8yXCbaH%5F%5Fdf2%5Fw%5F%5FD8DBP7hOyjxWAm/embed/c1iqyuRVtZHIAM1xTq8dyA

Go to the book website for even more information.

These are the good old days…

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Interesting commentary from Jeff Jacoby in yesterday’s Boston Globe (click here). Goes back to the adage of whether you consider the glass half full or empty, or just another thing to wash!

There are a lot of comparisons in the media of today’s economic conditions to the inflationary 1970s and even the Great Depression and the 1930s (see shaded areas below). The chart below shows the annual Misery Index from 1930 to 2008, calculated as the sum of a) the CPI inflation rate and b) the unemployment rate.

Notice that today’s single-digit Misery Index of 9.7% isn’t anywhere near to the double-digit levels throughout both the 1930s and the 1970s, with peaks around 20% in both decades. The Misery Index is also lower today than during most of the 1980s.

Not to dismiss the current economic contraction, but a long-term perspective on the part of green industry managers is needed. This is the 11th “recessionary” time period over the last 60 years. My point — it is not the first, nor will it be the last — on average they occur every 6 years.

We could even go so far to say they are a part of normal business cycles. A clear-minded, deterministic, strategically visionary mindset will probably be the only thing separating those who survive and those who don’t. Stay tuned to future posts on specific strategies to compete in a down economy!

Increase marketing now!

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It really has been an interesting week of economic news:

  • Real GDP growth has been better than expected (good).
  • Real personal disposable income grew at highest rate in months in April (good).
  • Consumer confidence dropped for a fourth-straight month to 59.8, the lowest since 1980 (bad).
  • Unemployment’s only running at 5% while interest rates are quite low (good).
  • One-year inflation expectations grew to 5.2% (bad).
  • Falling housing prices continue to be a significant source of down-side risk to the economy (bad).
  • The EIA is forecasting gas prices below $3.50 by the end of this year, and below $3.00 by the end of next year (good).

Bottom line for green industry firms: As I have said many times, stay the course. Also consider increasing your marketing expenses. Yes, you read that correctly. Increase your spending on marketing right now! As others are making cutbacks (and marketing is usually the first thing to go during hard times), increase your marketing efforts to gain increased “mindshare.” While you should be spending 3-5% of gross sales on marketing normally, consider increasing this to 5-8%.

Speak when others are quiet and even a whisper can be heard. Imagine if you shout.

Latest consumer confidence data

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An adage among economists is that recessions are crises of confidence. Consumer confidence tumbled to its lowest in 28 years this month, a survey showed on Friday, as short-term inflation expectations reached the highest levels since the stagflationary early 1980s.

The news heightens the dilemma for the Federal Reserve, which has bet that slowing economic growth will tame inflation pressures. The report also showed that lower-income households were the focus of the downturn in sentiment. The Reuters/University of Michigan Surveys of Consumers’ preliminary index of confidence fell to 59.5 in May, the lowest since June 1980. In April it was at 62.6.

This data is somewhat disturbing given that consumer confidence is usually correlated with the necessary consumer expenditures to drag an economy out of recessionary times.

And yet, just a couple of days ago, I reported that that the Commerce Department’s retail-sales report showed an overall 0.2% decline BUT exhibited a 0.5% increase when auto sales were excluded.The resilience of the consumer seen in that report is particularly encouraging given that this number largely represents spending that occurred prior to the receipt of the economic stimulus rebates. While it’s conceivable that some spending may have been pulled forward in anticipation of the rebate checks, survey responses and historical experience suggest these outlays occur only after the checks have been received.

The bottom line…we need to keep close tabs on all of these indicators. It’s also an election year which means that some consumers will be very happy with the outcome and others not so cheerful. Either way, you might want to check out my February 18 post on how to combat falling consumer confidence.

Mother's Day Projections

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Here is a scoop on a news release coming out today by our Texas AgriLife Communications Team:

Experts Say Things Looking Rosy for Texas Floriculture This Mother’s Day
Author: Paul Schattenberg

While research shows U.S. consumers expect to spend a bit less on Mother’s Day this year, that likely will not affect the purchase of cut flowers and flowering plants for moms in Texas, according to industry experts.

According to the 2008 Mother’s Day Consumer Intentions and Actions Survey conducted by BIGresearch for the National Retail Federation, Americans expect to spend an average of $138.63 on Mom this year. This is slightly down from the 2007 average of $139.14.

But although a nationwide reduction in consumer spending for Mother’s Day is expected, those associated with the Texas green industry expect flower purchases to be as good or better than in 2007.

Dr. Charles Hall, Professor and Ellison Chair in International Floriculture at Texas A&M; University, said he expects the Texas floral industry to fare well this Mother’s Day due to a combination of timing and consumer confidence.

“In spite of the downturn in consumer spending for Mother’s Day predicted in the National Retail Federation survey, the same survey shows Americans intend to still spend more than $2 billion on flowers this Mother’s Day,” he said.

Hall added that the 2007 NRF study showed more than 72 percent of those surveyed purchased some sort of Mother’s Day flora at an average retail price of $27.59.

“Other gifts like jewelry, CDs, housewares and the like tend to be spread out among the holidays, but flowers are a traditional choice for holidays centered around women,” he said. Hall also noted that overall consumer confidence is still high in Texas and that the likelihood of consumers purchasing flowers and other floral items “directly correlates” to that confidence.

“Not only that,” he said, “but (economic stimulus) rebate checks are now being mailed out and that will give more impetus to spending. Some of that money will go toward Mother’s Day gifts, which would include flowers.”

“Even with the slowdown in the economy, the amount that will be spent on flowers for Mother’s Day throughout Texas probably will be as much or more than last year,” said Jack Cross, past president of the Texas State Florists’ Association and owner of Arthur Pfeil Florist in San Antonio. “Mother’s Day is a traditional holiday, and the Texas consumer is traditional about Mother’s Day gift purchases, especially when it comes to buying flowers.”

In addition, Easter came much earlier this year than in years past, giving more time for the consumers to “recover” before their Mother’s Day flower purchase, Cross added.

When it comes to cut flowers, Texans usually prefer buying roses, carnations, tulips and lilies for Mom from their neighborhood florist, he said. Azaleas, begonias and Calla lilies are among the most popular flowering plants purchased.

“If someone is going to buy from a garden center instead of a floral shop, then that purchase will usually be something like a rose bush or a hibiscus plant,” he said.

While the product mix between Valentine’s Day and Mother’s Day couldn’t be more different, the sales dollars generated from each are about the same, said Stan Pohmer, executive director of the national Flower Promotion Organization, based in Minnetonka, Minn.

“Mother’s Day accounts for about 25 percent of all floral holiday sales,” Pohmer said. Cut flowers represent about 46 percent of Mother’s Day floral transactions, outdoor bedding plants and hanging baskets represent about 37 percent, and flowering house plants and foliage represent about 15 percent.

Pohmer added that 64 percent of Mother’s Day flower purchases are made by women. However, he cautioned, floral sales in general may not be as sure-fire in the future as they have been in the past.

“While the floral industry has previously thought of itself as recession-proof, a more realistic term these days would probably be recession-resistant,” he said.

But in the Lone Star State, flower producers, greenhouse growers and retailers are all poised to make sure Texas moms gets their mums – or whatever floral they desire.

“Things look good this year for flower retailers and the greenhouse floral industry in Texas,” said Richard de los Santos, state marketing coordinator for horticulture with the Texas Department of Agriculture. “Flower growers are pretty well sold out of product and have made commitments to their retailers.”

“There seems to be a growing desire for people to give plants that continue to live and give,” said Marilyn Good, communications director for the Texas Nursery and Landscape Association in Austin. “Blooming potted plants are gaining favor, and the real up-and-coming gift plant is the orchid, which has a hard-to-grow reputation, but many are low maintenance.”

David Rodriguez, Texas AgriLife Extension Service horticulturist for Bexar County, agrees mothers often prefer potted plants or bedding plants to cut flowers.

“Some good choices for live plants for Mother’s Day might be Belinda’s Dream and Grandma’s Yellow roses, which are Texas SuperStar plants. This means, among other things, they are attractive, unique flowering plants suited to Texas. And they consistently perform well, regardless of a person’s gardening expertise.”

Other Texas SuperStar plants that may serve as good selections are the ‘Gold Star’ Esperanza and Perennial Hibiscus, he said. And the moth orchid makes a good choice for a beautiful, low-maintenance indoor flowering plant.

“But regardless of flower selection, there is always something unique about Mother’s Day,” added Hall. “Mother’s Day tends to supercede economic concerns in a ways other holidays do not. People know they can always rely on Mom during the tough times, so they aren’t going to forget that when Mother’s Day comes around.”