The Hill

Welcome to the fake recession

By April 1, 2020 No Comments

(This post originally appeared on The Hill)

The stock market falls. Millions of people file unemployment claims. There’s a historic drop in quarterly GDP. Consumer confidence nosedives. Production declines. Housing stalls. Oil collapses. Shipping dries up. Economic indicator after economic indicator warns of recession. Well, there is a recession. Welcome to the fake recession.

If you’re running a small business or planning for the future, just know this: Every single prediction that says we’re either in or about to be in a recession is correct. Yes, there will likely be negative economic growth that will probably impact the next two quarters, which is the textbook definition of a recession. Let’s not sugarcoat reality. Yes, things are going to be economically in the dumps between now and with all probability into mid-summer. Your business, if you’re lucky enough to be open, will likely need some time to recover. Your customers, if they’re lucky enough to be let out of their homes, will likely need some time to get back into their old buying habits. But you will. And so will they.

Which is why we’re all experiencing a fake recession right now. Real recessions – like the great one we had in 2009 – come without choice. We chose to have this recession.

In 2008-2009 there was a collapse of the financial system that was the result of a decade of poor financial decisions. These decisions wreaked many unintended consequences. Loans dried up. Markets lost more than half their value. Capital disappeared. Fearful consumers stopped buying. Both small business and consumer confidence plunged to historic levels. Real estate prices plummeted. Production around the world slowed. Businesses permanently laid off tens of millions of people. Governments scrambled to pass stimulus bills and inject liquidity. After a few years, things did start picking up again. The recovery was never strong. But ultimately our economy did get back on track.

Today, many of those same things also seem to be happening. Banks are increasingly more cautious. Markets have lost, then gained, trillions in a dizzying display of volatility. Consumer and business confidence dropped precipitously. Real estate transactions are on hold. Production and trade have withered. Businesses have laid off millions. The government passed an historic stimulus bill to provide much-needed funds for consumers and small businesses.

But even though all of these sound familiar, this is not the same. This is not the recession of 2009 or any recession before it. This is a fake recession.

Fake because it was artificially created in response to a very serious pandemic. Businesses didn’t shut down because of a slowdown in the economy. They were (rightly) told to shut down by their governments in the midst of a booming economy. Consumers didn’t stop spending or lose confidence because they were afraid for their jobs. They were (rightly) told to stay home. Up until just last month, consumers were the ones in the driver’s seat, enjoying a historically tight job market and spending, spending, spending. They want to keep spending, but right now they have nothing to spend on because the shops and restaurants are closed. This is not real, and you and I both know it.

The clients I speak to – long time, experienced business executives – also know that this is a fake recession. We know that the wave of the coronavirus pandemic will ultimately wash away. We don’t know exactly when, but we know that it will be in a few months at the latest. We know that there will be vaccines, treatments and medications in the not too distant future that will put an end to the panic caused by the disease. I was scheduled to speak at 17 conferences in April and May. All 17 of them have rescheduled to the fall. My company had six large projects scheduled for the spring, and all six have been pushed back to the summer.

Few people I know are cancelling their business plans. Most are merely delaying. Everyone’s pushing back the schedule until the wave passes through. Most are expecting shoppers and buyers to return with a vengeance. They will. Of course, and sadly, the businesses that were not prepared for this sudden economic earthquake may not be around then, and that’s upsetting. But most will. Most business owners will practice good cash flow management. They will dig into their savings, get a cheap government loan, cut their expenses, send their employees to unemployment and wait out the wave.

They’ll do this because they know that the wave is like any other wave. It’s passing through. It’s a temporary disruption. They know that this is not a real recession. They know that this is just a fake recession.

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