Has the recession truly ended if things don’t feel any better?
Downturns offer lessons, but too often we don’t take heed. There is a natural eagerness to be done with the pain and frustration of layoffs and consolidation and defensive thinking and cash management and debt restructuring in order to return to easy money funding and a buoyant M&A market. But nearly four years after Lehman filed for chapter 11, the U.S. economy, one of the stronger developed economies, is just… getting by. There is a lesson here, if only we stop to listen.
The lesson is that something is different this time. But not surprisingly, people have a tendency to recoil from the idea that we could be facing a novel (to us, not novel in a historical sense) type of recession. We seem to think every boom is a precious snowflake wildly different from the last one, but we expect each downturn to be cyclical and short because, well because we want the world to be like that. But it isn’t.
Jack Goldstone has a recent article that examines the multi-faceted nature of the worldwide economic challenges we face, and will continue to face. The list is sobering:
- No Quick Fixed for a Busted Balance Sheet: I am not one to be frightened by an ugly balance sheet, but there is something distinctly unnerving about the poor state of consumer, private sector (in the middle and especially lower middle market, I am still seeing a lot of struggling, over-levered companies) and government (local, state and federal) finances despite interest rates that only a few years ago would have been considered laughably (almost irresponsibly) stimulative.
- Demographics: We are getting old, and fast. This demographic challenge is going to serve as a drag on the ability and willingness of many countries to invest, as well as push down rates of productivity growth. Solutions may differ, but we are going to need to come to some agreement on how to adjust to the fact that our individual good fortune at the prospect of an extended lifespan has resulted in substantial societal costs. Countries around the world will soon be engaging in discussions about just what type of trade-offs they are willing to make.
- Technology is Beating Education (for now): Wage growth seems to have decoupled from productivity temporarily. Goldstone points out that in the past when this has occurred labour both retrained and sought remedies through the political process. I expect that we will also see substantial changes in how companies large and small organise themselves, as the large number of freelancers become better integrated into the wider economy and companies begin to recognise the incredible force multiplier these professionals can be (especially for small and mid-size organisations).
We are all privileged to be living through a fascinating time, and though there will continue to be pockets of eye-popping growth, the broader economy is facing challenges that are not yet through with us. It could be a while before we have another economy-wide bout of irrational exuberance.
About the author:
David Johnson is a founding partner of ACM Partners, a boutique financial advisory firm providing due diligence, performance improvement, restructuring and turnaround services to companies, real estate investors and municipalities. He can be reached at 312-505-7238 or at [email protected].