So, How 'Bout That Economy?

I've been optimistic that we're near the bottom of the economic downturn since the beginning of 2008.  I'm starting to understand that I don't have a clue when this will end (but neither does anyone else).  To give myself some credit, however, I was also early in calling the start of the recession (back in February 2008, I wrote that I thought a recession started between November 2007 and January 2008, which was dead on and months before the Conventional Wisdom said we were in one).

In retrospect, what I wrote a year ago ("....the recession began sometime between November and January....we're probably close to the bottom right now....") seems hopelessly optimistic.

All of this is a way of saying, don't believe my opinions about the economy, I don't have a clue.

But I do have some observations:

  1. This is already the worst economic downturn since the early 80's, and there's a good chance it will be the worst since the Great Depression.  But we're nowhere near as bad as the Great Depression and I see no reason to assume it will get that bad.
  2. As bad as the recession of the early 80's was (and it was the only one on par to what we're going through now), it also ended surprisingly fast.  At least surprising for the people in the middle of it.
  3. The Great Depression capped a whole series of Depressions in the 1800's and early 1900's, some of which were almost as bad as the Great one.  The economy really is different (more stable) now, as compared to the Gilded Age.
  4. Therefore....we will come out of this recession, and maybe sooner than the Conventional Wisdom thinks.  Right now the Conventional Wisdom is that the recession won't end until the end of 2009, and some are pushing it into 2010 or further.  The CW will always see the end of the recession 6-12 months in the future, even when the recovery is already beginning.

Fred Wilson wrote yesterday that he sees a fundamental shift in the economy going on: the big old "blue chip" companies are often the ones who got themselves overleveraged and in trouble, and the younger, smaller companies are taking over.  I think there's a lot of insight there: over the past 20 years many mature companies (GE, GM, etc.) turned themselves into "growth" companies by developing financing arms, which essentially goosed their growth with leverage.  The real growth companies (ones whose core businesses were growing) saw no need.  The new "blue chip" companies are ones like Google, Microsoft and Cisco, with dominant market positions and cash-rich balance sheets.

In my own business, I've observed that the world is definitely not coming to an end, and in fact innovative companies are taking market share (a statement which--fortunately--describes our biggest client).  There is still consumer demand, especially if you have a product or service which people like at a good price.  There is still room to compete, especially on value and no-gotcha services.

So while I'm still optimistic that we may be nearing the bottom of the recession (and I'm going to stay optimistic no matter how long it takes!), in practical terms I'm keeping my head down and focusing on business.  If enough people do the same, this recession will be over, and sooner than we all think.