What is the level of business any merchant on Main Street can expect? Let’s assume you have been running a popular retail clothing store for the last 20 years, 1992 – 2012. You would have experience with an expansionary period (1992- 2007) and a not-so-expansionary period following that.
During the course of your business, your store would have presumably grown in line with your needs. Your store would likely be sized in correlation with your display and storage requirements. When you analyze your sales every year, you would go through the requisite comparisons of year-over-year and determine the level of comfort you reach, thereby.
Now, you’re in 2012. You’re hearing about economic recovery, economic slide. There is volatility in the markets as well as the economy. Here is the big question: what is your expectation? At what level is recovery achieved? I suppose that the real question is what level of recovery would be too much to ask for? Should you downsize, maintain, close your store? No easy answer, and I haven’t given sufficient facts to determine that. But…
Our national economy is 66+% consumer-based. One of the strongest points made by economists in explaining the consumer’s behavior until 2008 was that there was an ability to tap into increasing real estate values and easy credit to purchase more and more. If you agree that the period 1980 – 2000 was an aberration in our economic history (see post: “The Magic of 1980 – 2000”), and that that period allowed and encouraged a vast amount of consumerism (continuing into 2007 – 2008), you might also agree that the period after 2008’s financial collapse created a very different reality.
After 2008, many people have become unemployed, many have seen their incomes reduced, and many have become more fiscally cautious. We have become aware of the mortgage mess and derivatives debacle (which hasn’t disappeared). Prior to 2008, many employers grew their businesses and employment numbers based on the results of the “Magic of 1980 – 2000” and its aftermath. Even though we may realize that all of the above is legitimate, we tend to look for the return of the business volumes of that period. All things considered, is that likely?
Many retail operations have found continued existence in this environment to be difficult. In addition to the economic factors, the web has presented competition (i.e. the local book store vs. Amazon) that clearly affects traditional brick and mortar retail (brick and mortar = physical buildings, or store fronts). While I have no hard evidence that web business presents less economic boost to the overall economy than brick and mortar, I do believe that the web business has a net negative effect on local economies.
We tend to hope and believe, don’t we? We tend to assume things will go the right way. That is appropriate, but timing is everything. Will the stock market go up tomorrow? Next week? When? Is it possible that the rate of improvement will be lower, long-term, than was the case pre-2000? The points made in the post “The Magic of 1980 – 2000” and in this post lead me to believe that the stock markets should, once the world calms down, grow at a rate of 2.5 – 5%. The much-assumed 8 – 10% per year was a phenomenon not likely to be repeatable on a consistent basis. The level of business our companies can expect to recover will likely not be at the capacities reached or demanded pre-2008, for some time. We already see that in the number of unemployed.
What we have seen for the last 50 years has been a transition period, and most notably the period 1982 – today, of computerization and technological explosion. The economic expansion noted above was a wild subtext of the transition (for another day’s post). The fiscal stress we’re experiencing on an individual level is most clearly a transition from the economic euphoria of the recent past to current mess and depression we’re in. As we adjust, I do not assume we get back to levels of growth seen pre-2008. I also don’t believe the suggestion that employers are waiting for something to create “confidence” before hiring will begin in earnest. I do believe that employers are waiting for buyers of their products to create demand for additional employees.
Much of the record corporate profitability we have seen over the last 2 – 3 years has been due to increased efficiencies, not record sales. If the sales numbers are not what we’re used to in creating the record profits, perhaps the unployment numbers are likely to persist? Is that in line with current realities?
So what does all of this lead to? Let’s talk about personal finance next.