Mesinger Pulse – “Animal Spirits – Trust and Confidence in the Economy”

In 1936 the economist and author John Maynard Keynes, wrote a book entitled The General Theory of Employment, in which he coined the term, “Animal Spirits”, which was used to describe human emotions that drive consumer confidence. It also generates human trust in economic conditions. One could say that before there can be a better economy there must be a trust and then a confidence that will drive that.

I have seen several articles written and surveys taken since the presidential election that tend to show there has been a bump in activity in our industry as a result. I have also had several calls from clients and prospects echoing this belief. If one were looking for a data point to bolster this belief they could look no further than the stock market results since the election. The question though is, will this activity really equate to more closed transactions or will the related demand reduce supply enough to affect prices from the years old downward trend?

A very good friend of mine who is in the publishing business was the first person to ask me about the confidence he is seeing in the economy and then relate the Animal Spirits term to this phenomenon. This was so interesting that I began to read more and more about the theory and of course the most logical conclusion is to wait and see if that is what we are experiencing. There is no way to completely think we can sit back and ride this wave forever. We all must cautiously take one step at a time. Drawing long-range conclusions on short-term gains hardly creates a trend that is sustainable. But, don’t get me wrong, it is great to have this bump in activity.

I was struck by one bank survey in particular. It is a regular, well read survey that is mostly contributed to by the dealer/broker community as well as a few ancillary industry participants. One of the questions specifically asked was if we as a community were seeing this post-election bump? When the collective answers came back a large percent of respondents answered, yes. The results were then published by several industry publications. As I mentioned above, this is real and great to be experiencing, however, my question was will this bump be sustainable and can it really affect the downward pricing trend by meaningfully reducing supply?

If you turn to page two of this survey’s results you will see a corresponding number that says it all, which is that 59% of responders said “Pricing” was worse than the previous survey. This tells me what I already know just by coming to work every day and opening my email blasts from listing dealers and brokers shouting, “Price Lowered”, “Motivated Seller”, “Must Sell”, etc. etc, etc! So, there are a combination of things happening. People are drawn to our industry to either move up or even better yet, get in for the first time, by two phenomena, confidence in the economic conditions and Price.

I firmly believe that if sellers took this Animal Spirits term incorrectly and chose now to say they alone can stop the downward trend in pricing by just collectively raising their prices, even the Animal Spirit in us all would fade. Supply is just too great now due in great part to what I regularly discuss in my articles as a paralysis in the growth of the emerging markets. Will this growth in the economy in North America be able to spill over into the emerging markets? Not quickly enough. Can the growth in our North American economy be enough to reduce global supply? Probably not. Could the growth in our economy at least slow down the downward pricing trend? It possibly could if this growth is sustained and continues for a few years while the emerging markets regain their strength. Lots of “maybes” and as I mentioned the best tact is to cautiously wait and see if all the post-election clamor can continue and progress from clamor to real policy and from real policy in theory to real growth that is meaningful. Lots of “ifs” as well.

One thing is for sure, this bump for the moment is real. In fact, I have had more prospects and clients than ever call and discuss transitions mostly into bigger, newer planes, simply because they want them rather than need them. They are all actually articulating that sentiment when they call. Admittedly, getting this “want” rather than “need” based buying to be an actual transaction is difficult and in great part it depends on the strength of the want compared to the reality of the cost. I have to point out that the driver for this discussion is more about the price of the planes today compared to any other time in the past. In summation, the Spirit is fueled by the price.