Navigating Stormy Seas
Whether or not our country is sliding into a double-dip recession, we are almost certainly facing a protracted period of sluggish economic growth.
Many prominent economists foresee stubborn high unemployment, disappointing GDP growth of between 1% and 2%, and weak consumer confidence for several years ahead. Because of uncertainty, businesses that are flush with money are reluctant to hire, and consumers are holding off on spending. These factors are creating a downward spiral. At a time when the Eurozone is in crisis, China is retrenching and the U.S. is grappling with debt, inflation and balance of trade issues, this could easily push world economies over the brink into another serious recession.
The last recession lasted from year-end 2007 until the middle of 2009. It was the most severe economic downturn since the Great Depression. It caused the U.S. economy to shrink by more than 5%.
Since then, economic recovery has been anemic. Indeed, for many Americans, the recession has not ended and economic hardship persists. For one thing, 14 million people are out of work. A third of them have been jobless for more than a year. People without jobs curtail their spending, and this further impedes GDP growth.
At the same time, inflation is diminishing what limited buying power consumers have, and the collapse of the housing market has decimated their retirement nest eggs. Home values have dropped nearly 50 percent in parts of Florida, California, Nevada and Arizona, as well as in troubled cities like Detroit. Prices could plummet another 10 percent if current trends persist.
And if this isn’t enough, the Eurozone crisis continues to weigh on consumer, investor and business confidence and stymie economic activity around the world. Markets remain extremely volatile, and the regulatory landscape is very uncertain. Consequently, those with resources to invest have few places to put their money and little inclination to take risks with it.
Amidst all this uncertainty and turbulence, one thing is certain: we as business leaders will be faced with erratic currents, choppy waters and stormy seas going forward. I would offer a few principles to help guide us through the rocky shoals:
Be defensive, and navigate a steady course.
Be aware of macro trends, but focus daily on those things that you can control.
Be opportunistic, and seize the opportunities that appear unexpectedly in this volatile environment.