Back
in 1979 a small group of traders discussed the impact of the Iranian
revolution, particularly the rise of Ayatollah Khomeini. They talked about the
way his rise to power had suddenly sucked the life out of retail trade as the
fear of world conflict took hold. That is the first time I can remember
thinking about global uncertainty impacting directly on my sales at QVM and now
the Reserve Bank of Australia is actually measuring that uncertainty in its economic
analysis.
Measures
of consumer confidence have been around for years but this uncertainty index
tracks the cost of different factors such as international events and
government policy decisions on the economy. The RBA’s model found that
increases in uncertainty of a fairly modest amount - such as 30 basis points -
are associated with a downturn characterised by lower employment growth, weaker
retail sales growth, and a fall in consumer confidence.
Past
"uncertainty" events include Prime Minister Keatings "recession
we had to have" speech, the September 11 terrorist attacks, and Lehman
Brothers bankruptcy. It is not yet clear how this knowledge will influence the
actions of the Reserve Bank but the direct correlation between fear and economic
activity is a clear lesson for those responsible for activating and
communication corrective action. It is nice to know that these disruptive
events are being measured and strategies formulated to minimise unnecessary
impacts. As Franklin D Roosevelt famously said "the only thing we have to
fear is fear itself".