You’d have to be living on another planet not to have heard rumblings about a recession in the United States or world markets. The financial news makes one gloomy pronouncement after another.
Are We in a Recession?
The funny thing about recessions is that you may not know you’re in one until it’s well underway. Or until it’s over. A recent MarketWatch article suggests it’s possible that the U.S. economy is already in a recession. However, in the end the article concludes “it’s inconclusive.” In other words, they don’t know.
Other articles hint strongly that we are already in a recession.
But again, not everyone agrees.
So, why is it so difficult to tell when a recession is occurring? For one thing, determining a recession is more art than science. Most economists look at a number of different indicators to determine whether recession exists. They don’t always agree on all those indicators. And measuring some of those indicators is not necessarily an exact science, either. Sometimes it takes months for all the data to come in.
What’s more, some visible indicators behave counter-intuitively. Take the stock market, which gets covered ad nauseum on the news. You can’t equate Wall Street performance precisely with the economy’s performance. Stock prices tend to fall before a recession begins. Stocks actually start going up again as the economy begins to climb out of recession. And then again, stocks rise and fall even when we don’t have a recession.
So, you may be wondering what my opinion is. Do I think we’re in a recession? Well, I’m not sure my opinion matters much.
I’m not a trained economist. I can only go by the reports I read. However, I do know that economies run in cycles. You can’t have robust economic growth forever. At some point things slow down for a while. So, recessions are inevitable at some point. And recession is looking more and more likely with each passing day.
But if recession comes I’m not worried. I’ll tell you why.
What History Tells Us
Lou Dobbs (commentator on CNN) spoke last evening about the U.S. economy on the brink of “disaster.” Hmmm. I’d hardly link this economy to a word like disaster. I think he overstates the state of the economy in an irresponsible way. He whips up fear. He withholds the perspective of history.
Take for instance, the subprime mortgage mess that you hear so much about. History tells us we’ve encountered worse — and just in my lifetime. When I first started out in business I worked in a bank. At one point I managed a nationwide foreclosure portfolio. Some of those foreclosures were the vestiges of home loans made during the early ’80s when average citizens like you and I had 12%, 13%, even 14% interest rates. I’ve seen housing booms and busts (and booms once again) come and go in markets like Texas and Southern California.
The other night I heard a local news story about a vacant house in Cleveland in foreclosure that had been stripped of everything of value, from pipes to carpeting to siding. The report implied some neighborhood catastrophe of a magnitude the world has never seen before.
Trust me, I’ve seen worse — entire apartment buildings that were totally stripped in the space of 30 days. Not pleasant, but a fact of life. And that was Houston, not Cleveland — in an area that’s since rebounded to be a beautiful upscale neighborhood.
I feel for anyone facing foreclosure and don’t wish to minimize the impact. But let’s put the current housing and mortgage situation in perspective. Just like we need to put the economy into perspective. These things run in cycles. And cycles come and go.
Don’t Let Recession Fears Spook You
Rather than obsessing about gloomy financial news, focus on how you conduct your business. What matters more for your business is your state of mind. I’m talking about the attitude between your two ears. If you let yourself get spooked and defeated, your business is done for — even in the best economy.
What also counts is your ability to make the right decisions for your business in the midst of the macro-economic conditions going on around you.
Joel Libava wrote here on Small Business Trends that even during recessions people and businesses spend. Life goes on.
Not long ago Tim Berry echoed similar thoughts about how the way you run your business matters more than macro-economic trends.
UPDATE: In a similar vein, Robert Mann sent me a link to his article pointing out why we’re NOT likely to have another crash of 1929 — well worth a read.
I would add this: don’t obsess on the economy, but don’t ignore the bigger economic picture, either. For instance, if you were considering making a huge purchase or hiring lots of new employees to expand, you might want to run the numbers again. Do what it takes to make sure you’re not overextending the business at a time when the economy is soft.
But otherwise, let it be business as usual. Whatever you do, don’t let the economy become an excuse for not trying to make your business successful. No cop outs.