The Modern Recession
Theory Up Front: As the pace of business increases exponentially, so will economic cycles, and our lagging indicators for recession are no longer relevant.
Some fear-inspiring words and images sell (ads) better than others:
People hurting others.
Children in pain.
The 24 Hour News Cycle
Ted Turner launched CNN in 1980 as the first 24-hour cable news network. In a sharp departure from the traditional model where news was delivered in the from of morning and evening newspapers, accompanied by the evening news, CNN was the first to offer a broad array of news on a never-ending cycle.
As the CNN model expanded to include networks such as Fox News, MSNBC, Bloomberg, and others the competition for viewers and ad dollars became fierce. CNN, however, had discovered a unique formula.
During the 1991 Gulf War, CNN provided real-time coverage of the action in the Persian Gulf. What CNN learned during the conflict was that American’s had a near insatiable appetite for the violence and suffering of the world.
This hypothesis was to be proven true time and time again through the first bombing of the World Trade Center, the Monica Lewinski scandal, 9/11, the wars in Iraq and Afghanistan, and The Great Recession.
In short, cable news learned that fear and pain sell ads.
The Recession Product
As policy makers try to find the appropriate balance of interest rates, inflation, and wage growth to sustain broader economic expansion, recession becomes a regular part of the economic cyclical in many parts of the world. Recession (contraction in Gross Domestic Product - GDP.) Recession occurs when policy makers make a misstep resulting in stock market contraction, increasing unemployment, and ballooning national debt.
Reviewing the statistics behind economic cycles, economists have identified leading indicators that can predict the likelihood of recession. In correlation, investment bankers have created products that allow them to profit from negative convictions, such as recession, by better against positing economic conditions (otherwise known as “shorting the market.”)
If bankers - people with significant market influence - can profit from recession was not bad enough, the 24-hour news engine also learned that the threat of an economic downturn draws viewers.
People are drawn by fear and their attention held as various experts argue for and against the likelihood of negative economic conditions. Viewers, fearing what may happen to their job status and retirement accounts, can't turn away. Ratings grow, ad prices increase.
Certain investment bankers profit from recession.
Cable news profits from recession.
Recession is in their best interest.
Recession has become a (profitable) product.
The Pace of Business
Today is the slowest rate at which business will ever progress.
In the post-WWII business world, large organizations would develop strategic plans to address the next 20 years of business. In a world where business and political leaders could, with reasonable accuracy, predict the future, economic cycles were more predictable.
On average, economists could predict that once every seven years there would be a contraction in the growth of GDP. The contributing factors could be related to geo-political concern, trade, conflict, or some combination thereof.
To restore growth monetary policy experts would influence the markets with tools such as reducing interest rates (making it less expensive for consumers and businesses to borrow money) and quantitative easing (when governments inject debt-backed currency into the market by purchasing government bonds to make cash more readily available for investment and consumption.)
Though these policies have proven successful historically, the lead time for their impact is long. In a world where business can predict the future 20-years in advance, a several quarter lead time for these tools to impact markets is a relatively small tax to pay.
In 2019, this is not the case.
A Post-Digital Economy.
The United States is in the middle of what is proving to be the longest period of sustained economic expansion in its history. In spite of this, there have been several periods over the last several years where economic indicators have screamed recession, only to turn around a few weeks or months later.
Through growth has been tepid, it has been sustained. Unemployment is at record lows, and there are more open jobs than job seekers.
Something is changing in the world market, but what is it?
To restate an earlier thought: Today is the slowest pace in which business will ever progress. Additionally, the rate of change will increase exponentially from this point forward.
How will this rate of change impact economic cycles that were discovered at a time where business could forecast markets and revenues decades in the future?
How will economic cycles change in a business environment that is fundamentally different every six months.
I have a theory: micro-recessions.
Micro-Recessions and a Learning Culture
I grew up in Meadville, Pennsylvania. A town with a rich history in manufacturing everything from dynamite, to zippers & pliers, and was most recently recognized as being “Tool City USA”: the worldwide hub for precision tooling and machining.
Meadville has largely been in recession since the mid-1990’s.
While other parts of Pennsylvania, the US, and the world have gone through several economic cycles since the 1990’s, towns like Meadville have been left behind.
The products that Meadville produced are no longer needed, or can be produced for less in other markets; the services the town was known for have been replaced with automation and modern prototyping technologies such as 3D Printing and Desktop CNC.
Meadville failed to reinvent itself as the world changed.
What happened in Meadville is a metaphor for the rapid economic cycles of the future.
I believe that there have been several localized recessions since the rest of the US emerged from The Great Recession.
The face of retail, for example, has completely changed in the last 10 years. Retailers such as Sears, KMart, and many other mall staples have ceased to exist.
However, it is not because the consumer is not spending, but that the consumer is no longer spending in these areas. The dollars have pivoted to e-commerce, boutique fashion, and digital products.
According to the Bureau of Labor Statistics the retail trade grew .5% between 2008 and 2018. The projection for the same trade between 2018 and 2028 is a .2% contraction. From this perspective, we could conclude that the economy is in poor shape; that less people are spending money and therefore retail is contracting.
What we need to understand is that these jobs have not gone away, they have evolved. Rapidly.
If we consider that Amazon is responsible for much of the shift in the retail market, we can associate the shift in retail to job growth in warehousing and transportation (think Prime deliveries and Amazon Distribution Centers) is growing at a consistent 3% year-over-year for the foreseeable future.
Similar examples can also be seen in other areas of the economy such as manufacturing, and even technology.
In a rapidly changing economy, recession will always be present when you consider micro-perspectives.
In a rapidly changing economy, growth will always be present when you consider micro-perspectives.
Do yesterdays indicators still matter?
When we consider the traditional economic indicators such as the Primary Manufacturing Index, Consumer Confidence, Consumer Price Index, Producer Price Index, etc. we need to ask ourselves if these indicators are still relevant in the way they are currently measured and utilized.
Is there too much volatility in the business climate for these lagging indicators to be meaningful?
Are broad-based market indicators still meaningful in a world where economic and political conditions impact markets real-time?
Are conditions such as global trade tensions, and even war still, relevant as long-term market influences in a world when conditions can change with a single tweet?
Recession will be perpetual. Recession will cease. Recession will be ruinous.
It is my prediction that recession as we know it will cease to exist.
Temporary contraction in GDP that may or may not impact employment; that may or may not influence consumer spending, will not happen again.
Instead, there will be certain areas of the economy that are in a perpetual state of recession. As a consumer and market participant, we will need to build resilience to change. Change in terms of where we invest our money and in terms of how we develop ourselves to remain relevant in the job market.
Instead, there will be certain areas of the economy that are in a perpetual state of growth. These sectors will be constantly investing in emerging technology and remain keenly in-tune with the customer and competitive landscape. The will pivot and improve without guilt or hesitation.
Instead, broad-based recession will be absolutely ruinous. On a micro-scale, if people, towns, and industries fail to reinvent themselves as business continues to change, they will be irrelevant.
On a macro-scale, when we consider factors such as war and large-scale corruption, recession will lead to pain and cost the fundamental rights of safety, security, and survival.
As the media begins to beat the drum of recession on the 24 hour news cycle, I encourage us all to think critically and consider that broader market.
Don’t blindly buy the recession product (and support their advertising engine.)
Consider if the news-of-the-day is a flash, or a trend.
Consider if the trend is the result of a collapsing industry, or the result of more significant global conditions.
Consider with depth, and plan with breadth.
The best way to hedge against economic cycles is to live your life, enjoy those around you, and constantly invest in your health and knowledge.
No matter what the economic future may hold, the key to thriving will rest on the ability of the individual, region, industry, and country to pivot based on the needs of the world.