The Great Comeback, Part 5: Environmental Assessment: Consumers and Investors

This post continues my outline of the five-part process that will allow you to lead your company through the Great Recession into the Great Comeback, with a return to increased market share, growth and prosperity.

Previously, I discussed the economic and business cycles that make up the first part of the five-part process, the environmental assessment. Here, I will look at another part of this environmental assessment: consumers and investors.

The consumer of 2009 is afraid, confused, uncertain and changed.

Things were very bad in the fourth quarter of 2008, but there was anticipation that 2009 would be better. The first quarter of 2009 was even worse than the fourth quarter of 2008. This had a profound impact on the consumer.

Consumer spending in the United States fell another 2% in the first quarter of 2009. It will be flat to slightly positive in the second quarter and will be up 1% in the third quarter and up 2% in the fourth quarter.

The loss of wealth by the US consumer has resulted in people changing their behavior like never before. The market for luxury goods has disappeared. Wal-Mart is doing very well and the consumer's focus is on necessities (food, health, shelter and clothing).

The unemployment rate continues to climb and will throughout 2009, but the number of people who are fearful of losing their jobs is higher than the actual number of people who will lose their jobs. Because of this, consumers have cut back, they are eliminating discretionary purchases, and they are saving more.

The good news is the consumer is getting back into the game. Both the University of Michigan Consumer Sentiment and The Conference Board Consumer Confidence Index have bottomed and are moving upwards.

The bottom for the United States consumer was February March 2009. The recovery has begun.

This recovery will take time. This recovery is emerging from record lows in consumer confidence and has absorbed considerable pain over the last 12 months. But, the United States consumer is back and will slowly be responsible for U.S. recovery, China recovery, Europe recovery and ultimately world recovery from the Great Recession.

The business investor of 2009 is cautious but somewhat optimistic.

Business investment will experience an exaggerated cyclical decline characteristic of the economic downturn. Non-residential fixed investment and industrial production will continue to fall through 2009 and early 2010. Corporate profits will not return until 2010, and the factory operating rate will continue to be very weak until mid-2011. Capital spending will continue to be anemic.

Investors are feeling better about the overall economy then they have in the last year as they see the return of consumer confidence and the efforts by the Treasury and Federal Reserve to stimulate the economy. In addition, investors take heart from the Treasury commitment to cleanse banks of toxic assets and to stem housing foreclosures. Although home prices will continue to fall throughout 2009, residential construction will bottom at the end of the year and provide a positive boost to the GDP going into 2010.

Investor confidence will lag consumer confidence by several quarters, but will return in 2010. However, it will be 2011 before substantial capital expenditure is made by industry to upgrade industrial capacity. The last sector to return to health will be private non-residential construction in late 2011.

How do you feel?

If you are like the company leaders who are going to be part of the Great Comeback, you are confident and ready to respond. Your Great Comeback must be proactively planned and executed in response to your customers' and investors' strength and confidence in the the marketplace.

Consumers will certainly lead investors, and necessities will certainly lead discretionary spending. However, as 2009 unfolds, we will see the growth of spending by consumers. As 2010 unfolds, we will see the growth of investing.

Organizations that properly plan for their Great Comeback will be rewarded over the next several years. In my next post, I'll talk about the final piece of your environmental assessment: government involvement.

Jim