The world of 2009 is quite different from what it was 20 or 30 years ago, or even five to 10 years ago. We now live in a world of
instant and
continuous communication. Whether from the Internet, television, a Blackberry, or iPod, we get news in seconds and there are whole industries dedicated to providing news 24/7.
In our current economic environment, the instant knowledge of every layoff, minute-by-minute scrutiny of the stock market, and hours of in-depth analysis of every possible financial statistic have led to a flood of bad news that started with the subprime mortgage collapse and has made the average consumer afraid to spend. Add to that an increase in the price of a gallon of gas (at the end of last year), the rapid drop in retirement account values, plus a presidential election where most of the rhetoric centered on how bad everything is, and you get a “perfect storm” of financial fear.
So what’s going to happen? I have no crystal ball, but here’s what I hope will happen. The news organizations will begin to see any positive story as news and will pepper us with some good headlines. The price of gas will have already fallen, and at some point cash will come back into the market and drive up the stock value in people’s accounts. There is a pent up demand being created as many people are not buying big-ticket items. All of this could lead to a reversal of the spiral as people buy more smaller ticket items that may wear out faster than the larger, more expensive items, and companies will hire more people to meet the demand, and those people will buy more, etc.
Although we may come out of the recession in a year or so, it will still take us much longer to return to the glory days of the past years. The reason I say that has to do with a quirk in how most financial data is reported. It almost always takes the form of the percentage change from the previous year. For example, we hear that automobile sales are down 40 percent from the same month last year. If we fast forward to a year from now, we may very well hear that auto sales are up by 10 percent. That will sound good (and any increase will be good), but it would still mean that sales are 30 percent less than two years before. However, the news flashing across everyone’s screens will be that auto sales are up 10 percent, and people will feel better and will become more likely to buy.
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