There are some signs that the recession may be bottoming out. The NFIB Index of Small Business Optimism rose again in May for the second straight month. But just what will the recovery will look like? And what is the longer term outlook for the economy?
The recovery will be quite lumpy. This is not going to be a case of a rising tide lifting all boats. Certain sectors in the economy and geographic regions are improving, while others seem to be mired with flat or even continued declining sales. And even within industries we are seeing inconsistent trends.
For example, while much of real estate and construction remains almost dead in the water, those who work within the healthcare segment of this industry report improving performance..
We have to be careful not to assume that this recovery will behave like others. Economists will try to predict the recovery’s behavior based on historic data from past recessions. My concern continues to be that this recession and its recovery may last for some time – a so-called “L” shaped recovery that could drag on for years rather than the “V” shaped robust recovery that we have often seen after deep, steep drops in the past. That is, this time of “bottoming out” may go on for months or even years.
In looking deeper in to the most recent NFIB survey we can also see signs that this recovery may be a long, slow road. Even though entrepreneurs feel more optimistic, they do not plan to increase hiring anytime soon. It seems that some of their optimism may be coming from a realization that the cries that the next great depression was on its way were unfounded.
“The biggest concern on the minds of owners is the weakness in spending which has now started to turn up as consumers become less concerned with proclamations of pending disaster for the economy – it’s not going to happen,” said NFIB Chief Economist William Dunkelberg.
However, the improvement in consumer spending shows little sign of a strong bounce anytime soon.
And what can we expect for the long-term economic outlook? Understand that economies are not just isolated to commercial transactions. There is a strong long-term tie between our economy and our society and culture. There are signs that we may be in a period of fundamental economic and cultural change.
The frenzied consumerism-driven economy that dominated our past decades may never return. Because the changes we are seeing in economic behavior may last for a long time due to a slow recovery, we may emerge from the recession into a very different economic/cultural reality.
For example, entrepreneurs whose business models are tied to luxury goods are holding their breaths hoping that their sectors will be the lagging ones we have seen in the past.. From Reuters:
Sales of luxury goods, which are expected to drop 10 percent this year, will not recover fully until 2012, according to a new report by Bain & Co, as austerity and understatement remain the “must-have” items of the rich and fabulous.
But this understatement of the rich may become culturally reinforced. A Washington Post story from earlier this week examined the shift in consumer behavior from being obsessed with “keeping up with the Joneses” to consumers seeking to be perceived by those around them as being a frugal spender:
The recession has changed the conversation in America. People are clamoring for caps on executive pay and recoiling at the idea of bosses cavorting at expensive spas. Friends are swapping recipes instead of making restaurant reservations.
Instead of feeling self-conscious about spending less, people are flaunting frugality.
“Something very deep has changed in the American psyche,” said Dan Ariely, a professor of behavioral economics at Duke. “The recession basically woke us up.”
Over the coming decades, this may translate into a fundamental shift to a more tempered society in which people are no longer seeking to find value from their economic behaviors, but instead are looking to non-commercial definitions 0f success and self-worth in their lives.
Opportunities can still be found in such a transformed economy if it actually occurs. The key will be to understand these changes and offer new business models that respond to changing needs, preferences, attitudes, and consumer behavior.