Bypassing the “Headline Effect” in 2019

The media has a powerful effect on consumers, but homebuilders can position themselves to succeed in the coming year despite this hurdle

By ALI WOLF

The connection between consumer confidence and the economy is crucial. After all, a recession is defined by two consecutive quarters of negative gross domestic product (GDP) growth and consumers make up two-thirds of GDP. The Director of Economic Research for Meyers Research, Ali Wolf, explains how the media can influence reality for consumers and why it matters for housing.

Research from economists and academics has quantified the relationship between negative headlines and their impacts on consumer confidence*. Findings suggest that during changing or slowing times, consumers will pay more attention to the media. This allows news sources to influence the reader through both the tone and volume of articles on a given subject.

Bad news travels fast.
  • Articles are more often ignored when economic news is positive or lacks controversy. When there is an economic soft patch, the media generates a lot of buzz with catchy headlines.
  • The “headline effect” highlights the problem with titles that act as clickbait. Studies show that titles get imprinted into the consumers’ mind even if the text in the article tones down the initial shock. This is important as 60 percent of articles are shared without even being read.
Frame of reference matters.
  • Sentiment is generally driven by a consumer’s reality (for example, do they have a job, have they had a raise, are their friends staying employed, etc.).
  • The economy is currently firing on all cylinders, which can explain why the Consumer Confidence Index from the Conference Board is near a 20-year high. Lately, however, we have seen a divergence between self-reported confidence measures and Google searches. Headlines play an even bigger role for consumer goods like housing because individuals pay more attention to news that directly impacts their financial well-being.

The tail wagging the dog.

Today is unique in that the headlines are pulling consumers away from the economic reality. All the fundamentals are lined up (employment, GDP, population growth, etc.) making consumer (and builder) confidence the lifeblood of the housing market.

If confidence softens, consumers will spend less money. Fewer dollars spent means lower corporate earnings. Lower earnings translate into a shift away from hiring and capital expenditures. The combined effect can create a downturn alone, with negative confidence in the market becoming a self-fulfilling prophecy.

Moving forward, these media headwinds mean that the industry needs to create a reason for the consumer to buy, whether that is better marketing to highlight a “deal” for the buyer or a compelling product. Contact us to discuss positioning yourself to succeed in 2019.

Ali Wolf is the Director of Economic Research at Meyers Research Meyers Research LLC, Orange County. She may be reached at awolf@meyersresearch.com.

*Click the following links for full access to a sample of the academic research: https://bit.ly/2SlDOQj and https://bit.ly/2SeGf7s

**Google Trends is a website where one can analyze search behavior

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