Eye on the Recession: Are We in a Recovery Yet?

The word “recovery” is being used with increased frequency; yet the experts are still afraid to say the word. While the economy is showing some signs of a recovery, it is also still apparently mired in a deep recession, hardly the time to declare that the economy is in recovery.

You might say that we are living in a period with extremely mixed signals. There was the news that people are beginning to refinance their homes, a good sign for the sluggish housing market. But it turns out that the refinance surge was due to an anticipated hike in the interest rate. In addition, the number of foreclosures continues to increase. In New York, stimulus funds are being used to encourage people to buy foreclosed homes as the inventory of such homes shows no signs of abating.

There was a report that the service sector had begun to hire once again. True to some extent, but on the flip side is a double-digit unemployment figure and that does not include the millions of people who are no longer looking for jobs. It is not a secret that the unemployment figures do not include the disenfranchised who have given up looking for a job.

Of course, the stock market has been doing better of late. Should that not mean that the recovery is here? Again, the mixed signals. Some of the strong institutions like Citibank are struggling and no one is sure just how long this “rally” will last. For some the climb back is so steep that there is little solace in the market’s resurgence.

So it may be a bit premature to use the word recovery for the economy as a whole, but it might be in order for certain sectors or even businesses. For example, the retail sector seemed to have a better than expected holiday season. Travel is making somewhat of a comeback. But again, these gains are modest and economists wonder how enduring they may be.

Several businesses that I am familiar with say that they feel that they are in a recovery mode. OK, it is possible for the economy to be in a recession and for individual businesses to be in a recovery. A service business I know has consolidated its operations and is doing much better. They certainly feel that they are in a recovery. In an earlier article, I pointed out how it is possible to take a business from an economic downturn to profitability. The formula is to control expenses and to operate on a much leaner basis.

I know a business that has cut two major brands from its inventory. The company realized that these two brands were not only not carrying their weight; they were draining the company’s successful brands. It was not an easy decision because there was no telling that the two struggling would not return to profitability at some point in the future. The company first sought to sell off the brands but found few takers. It had to take the bitter pill of disposing of the brands, but as it turned out it was not so bitter after all as the company returned to profitability enabling it to launch a new brand that stood a better chance than the two brands it dropped.

A company in recovery acts the way the economy would act if it was finally at that point. The company is much more secure in investing in its future just as people would do were the economy to be in a recovery. This is distinctly different from a recession where people hold onto their money, fearful that the hard times dictated to keep as much cash on hand and certainly not to plunge into ventures that have less than a promising future

So how does one know if a business is indeed a recovery? Economists like to think that it is all in the “graph.” They are loathe to call a temporary bump a recovery but are apt to accept that if a company, for example has had steady growth in 3 periods (quarters) that it might indeed be in a recovery mode. They also tend to evaluate other trends such as new business, the state of the competition, and some valid signals from consumers that that the recovery is not a passing fad.

The economists warn that a premature reaction to a presumed recovery is dangerous. A client I had not heard from in more than four years suddenly called to explore a rather ambitious marketing program. He seemed to feel comfortable that the worst was over and that it was time to embark on a marketing program we had discussed four years earlier. Our negotiations took several weeks and then the communications between us went dead. When I finally did catch up with him, his business seemed to be in a tailspin due to an investment that had soured. He admitted that he had seen the signals but chose to ignore them, believing that he could weather the storm. The marketing program was put on hold.

I, of course, wish that we were in a recovery and certainly hope that whatever business you are in it is in a recovery mode, but in a real way, which means that the direction of the graph is headed in only one direction: up!