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Tuesday, October 14, 2003
More on the Dow and that Magic 10k Figure

By Steven Taylor @ 5:23 pm

The point of the Dow 10k reference is that it would be a powerful symbol of economic recovery for the Dow Jones Industrial Average to return to five digits. The economy is very much an issue of perception. This is true in terms of politics, as voters don’t really know all that much about the economy except what happens to them personally and what they hear on the news. Further, most people don’t delve into the business and economy sections of the paper; rather, they react to casual economic news. Things like the Dow, the unemployment rate, layoffs (or not), profits for corporations (or not), as reported in the news are the ways by which many people assess the health of the economy. Indeed, I would argue that in the late 1990s the Dow became, in the minds of many, the variable which captured the health of the economy. Understand that I full well know that the DJIA is hardly an all encompassing economic indicator: that’s not the point. The point is that many see the Dow as such. And, it is noteworthy that we have become a stockholding society, so there are positive ramifications for many of us when the Dow is up (even if it is just our 401k statements).

Not only is the perception of the economy a political issue, it is also important to the health of the economy itself. That’s what the consumer confidence index is about. Do you all really think that consumer confidence is driven solely by well studied empirical data? No. Rather, it is fueled by the perceptions of the public (i.e., how I am personally, how my family and friends are and what I see on the news). And when people have a favorable impression of the economy, they tend to spend more money, which, in turn, helps the economy.

While I am hardly saying that if the Dow hits 10k or more (and stays there) that that guarantees any particular outcome in the 2004 elections, can anyone argue that it wouldn’t help President Bush? Can anyone make the argument that a falling or stagnant stock market doesn’t help the Democrats?

The election will turn on multiple factors, and the economy is always one them. So, good economic news, especially good economic news that is widely disseminated and fairly easily understood, certainly helps the party in power.

For that matter: can anyone cite an economic stat that is more in the public eye than the DJIA? It is a daily index and it is reported multiple times a day on radio, television and the internet. Even if the only news one hears in the top of the hour headlines on the classic rock station, one hears the Dow and NASDAQ numbers.

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1 Comment»

  1. “The economy is very much an issue of perception.”

    I disagree; While shades of grey may be an issue of perception regarding marginal questions (ie, do I buy a Mercedes or a Chevy?), on the big issues, it’s a black and white situation:

    Do I have a job? If I do, how well am I being compensated? Are my peers being laid off? How secure is my job?

    Once you get past basic job concerns, we slip into the next “tier” of economic related perception worries:
    Am I in debt? Is it getting worse? I am keeping up with my expenses or falling into more debt?

    Quality of life issues have more of a sliding scale, and the perception of how the economy is doing certainly colors our subjective worlds, but that’s after certain threshold issues.

    Its why the lack of job creation has been so troubling - although it hasn’t really slowed down consumers . . . .

    Comment by Barry Ritholtz — Thursday, October 23, 2003 @ 4:39 pm

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