Gaining a Supply Chain Edge

The Great Comeback, Part 2: The Bottoming of the Great Recession

In my last post, "The Great Comeback Part One - The worst of The Great Recession has passed: Are you ready?" I defined what The Great Comeback is and how it relates to the two phases of this recession we are in. I also described the connection and importance of globalization, and how The Great Comeback will begin with the return of consumer confidence, followed by investor confidence.

Then I pointed out that we are expecting the recessionary "bottom." Once you hit bottom, the only way out is up. The decline has ended, and recovery is at hand.

We are looking at a long procession of economic "bottoms" or "turning points" for different industries. The overall economy will also experience a time when the newspapers say we have "bottomed."

I think the bottoms have begun.

Let me share my top 5 reasons why I think this:

1.The US GDP in the 4th quarter of 2008 dropped 6.2%. Worse yet, the GDP dropped 6.8% in the first quarter of 2009

What happens next:
I believe the second quarter of 2009 will show a small drop in GDP; the third quarter will be flat and the fourth quarter will be up. The overall economy is turning and will turn by the fourth quarter of 2009. The industries that will lead this turn (food, cosmetics, beverage, pharmaceuticals and inexpensive consumer electronics) will turn in the second quarter of 2009.

2. The US fiscal-stimulus package will inject $561 billion into the economy in 2009 and 2010.

What this means:
Real government spending in 2009 will go up between 2.5% and 3%. The interest rate cuts and tax rate cuts will take longer to have an impact, but direct government spending will result in real US GDP growth of between .6% and .9% in 2009. These funds are being deployed now and we will see the impacts soon.

3. Both the University of Michigan Consumer Sentiment and The Conference Board Consumer Confidence Index, which were at record lows in the first quarter of 2009, are moving upwards.

What this means:
Although US consumers are afraid, confused, and uncertain, their overall confidence is being regained and this, starting with non-cyclic necessities, will result in sector-by-sector recovery.

4. Consumer spending fell again in the first quarter of 2009, but ended the quarter with an upward turn.

What happens next:
The second quarter of 2009 will be flat. The third quarter will see an increase of 1% and the fourth quarter, 2%. The US consumer is alive and getting well, and it is the US consumer who will lead the Great Comeback; first in the US, then China, then Europe and then the rest of the world.

5. This Great Recession has been severe, and so there exists a huge amount of pent-up demand.

What this means:
There is a tendency for "experts" to assume in a boom the good times will last forever, and in a bust the bad times will last forever. Of course, neither is true. Demand will begin with the lower costs items, but it has started and this too will result in The Great Comeback.

See this illustration of how an industry's 'bottoming-out' really is a misnomer:

Consider a food company that has four divisions: economy consumables, high-end frozen dinners, high-end frozen desserts and broad-based institutional foods.

The economy consumables may not have a "bottom" at all. Sales are at record levels.

The high-end frozen dinners may "bottom" in July 2009.

TAGS: Supply Chain
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