In my last column I wrote that humanity is in transition from one Age to another and that the global financial collapse is a painful part of that transition. This occurs during any major historical transition period. In addition I wrote:
“There are four words that keep coming back to me as I view the landscape of what lies ahead in 2009 and beyond. They are contraction, cleansing, reorganization and transformation. It is these four words to keep in mind as you read the forecasts here and look around you”
I repeat that because most of the economic predictions below are about contraction and cleansing. However I am not a pessimist as I believe that we are in a process of reorganization that can lead to transformation. Please keep that in mind as you read on.
The U.S. economy has been in a recession for close to a year, with the fourth quarter being one of the worst quarters on record. During this fourth quarter the global economy joined the U.S. When all the numbers come in for this quarter they will show a major contraction probably in the range of 4-7%. In a column in mid-October, I wrote:
“We will witness one of the worst holiday retail seasons in history on a year to year comparison basis. People who feel that they have no control over the performance of their investments will realize that the only control they have is in the area of spending which they will greatly curtail. Auto sales have fallen off the cliff and will continue to plummet. Sales of durable goods will also plummet. Consumers will only spend on the replacement of broken appliances, not on upgrades. Electronics, the darling of recent holiday seasons, will be flat to down, and while there will continue to be the giving of gift cards, amounts will drop dramatically.”
This proved to be true. I also wrote:
“As far as consumers are concerned the beginning of the Shift Age will be living the Thrift Age. Resale stores, barter exchanges and discount chains will do well. Socially, thrift will be the new cool value as extravagance is shown the door.”
Thrift is the new cool, the new extravagance. This is similar to small being the new big. As I wrote back in October, the consumer has pushed the pause button for an indefinite amount of time. Even when the economy comes out of this downturn the consumer will not return to her old ways. The reason for this is that the consciousness changed last October and the scars will last a long time.
Recession The ugliness of the fourth quarter of 2008 will be repeated in the first quarter of 2009 with similar negative numbers. These negative numbers of contraction will lessen somewhat in the second quarter, more so in the third quarter and only the fourth quarter of 2009 hold a possibility for positive growth. That will depend almost entirely upon what happens in Washington D.C. during the first half of the year (a separate column on that will be forthcoming). Basically this recession/downturn/contraction will last all or most of 2010.
Deflation In November I predicted 6-9 months of deflation. That is currently the reality in the U.S. Generally speaking almost everything costs less today than it did a year ago. With an already documented increase in the household savings rate there is no consumer driven upward pressure on prices.
Retail. Retailing is in a free fall. There will be numerous bankruptcies in the U.S. and around the world in the first quarter. Lead by the apparel sector, many chains will either declare bankruptcy or will close numerous stores. The last two decades of mindless expansion has led to a dramatic over-retailing of the U.S. so we are in a major corrective contraction. This situation will of course have consequences seen in unemployment figures and real estate vacancy levels.
Unemployment The U.S. lost 2 million jobs in 2008 and will lose another two million in 2009. This means a topping out at around 9-11% unemployment rate sometime during the second half of the year. This will only underscore the consumer’s decision to not spend, which of course will exacerbate the recession. Those that have jobs will save much more than anytime in the last two decades.
Real Estate We have been living through the collapse in residential real estate for the past two years. Now we will live through a huge downturn in retail and commercial real estate. Shopping malls will be shuttered as vacancy rates soar and significant commercial properties will go into default, starting first with properties purchased with a lot of leverage during the past three years. Loans will be called. This will be a cleansing process of the removing excess leverage in these sectors. Some cities will obviously fair better than others.
Price of Oil I think that for most of 2009 Oil will trade between $50-70 a barrel It will not go below $40 again but toward the end of the year it could exceed $70.
Advertising and Media In 2009 advertising and the media that live off it will under a strong recession. Except for a couple of mild recessions advertising has had a long consistently upward increase in revenues in the past few decades. This recession however will not only be greater that any in recent memory, it will be one of reorganization. When the advertising and media industry finally come out of recession sometime in 2010 it will have been permanently altered. I will devote a full column to this soon. Expect advertising expenditures to be down 7-10% in the U.S. and half of that globally for 2009
Stock Market As a futurist I am most often asked about the stock market. I really do not know what will lie ahead for the global equity markets in 2009. I certainly did not foresee the magnitude of the 2008 collapse. My sense is that the bottom has been reached and that fear has driven the indexes down beyond reason. Fear is dominant and will remain so until President Obama, Congress and the stimulus package have given the world a reason to be optimistic. There is a huge amount of money on the sidelines. The question is when the “I want to hold onto my money no matter what” gives way to ” I can’t afford to not start reinvesting” Only a change in the emotional landscape will cause that to occur.
What strikes me about 2009 is that there could be some major downward pressures on the global economy. The one offset to this is a government stimulus package in the U.S. and in many other countries that dwarfs anything in history. It is interesting how economists of every stripe are now looking to the government to spend us out of this economic collapse. As stated at the beginning of this column the words are contraction, cleansing, reorganization and then a couple of years out, transformation. Recovery is not the right word as what existed cannot be recovered any longer, only reorganized for the future.