Amid recession, businesses should plan
During a recession, it is hard for many business leaders to focus on anything beyond the next day. However, it is during a recession that business leaders need to begin the process of building their businesses for the recovery.
The National Bureau of Economic Research (NBER) — the same organization that recently proclaimed that the U.S. economy has been in a recession since early 2008 — also keeps track of previous recessions. Here is what that economic history tells us:
Since 1945, the U.S. has experienced 10 recessions. The average length of those recessions was 10 months. Even during the period from 1919 to 1945 that included the Great Depression, the average length of recessions during that period was 18 months.
Now, it’s true that history is not always an accurate barometer of the future. But in the case of economic history, it is perhaps the best one available. That being the case, and given that we are already 10-12 months into this recession, the chances of recovery in 2009 are strong.
There is also some interesting history of the U.S. stock market that also points to recovery. This may be difficult to believe, given how summarily beaten down global stock markets have become over the past 12 months. But take a look at some of the worst years in U.S. stock market history, as compiled by Value Square Asset Management at Yale University:
• 1931: The market declined by more than 40 percent;
• 1937: The market declined by more than 30 percent;
• 1920: The market declined by more than 15 percent;
• 1962: The market declined by more than 10 percent.
While 1932 was also not a good year (the market again declined by almost 10 percent), 1933 wound up being one of the best years in stock market history, with the broad averages increasing by over 50 percent. Interestingly, 1932 was the last year in office of an extremely unpopular Republican president who presided over an economy in free fall. And 1933 was the first year in the Oval Office for Franklin D. Roosevelt — a charismatic Democrat with wide popular support.
The historical analogies are strong, to say the least. The terrible 1937 market was followed by a great 1938 market that increased by over 30 percent. In the years after each of the other particularly bad years listed above, the market also rebounded nicely.
The NBER and the market history also tell another story that provides some positive news. Since 1945, while recessions have averaged 10 months in length, expansions have averaged a whopping 57 months. And according to the Yale study, 70 percent of all years have registered positive stock market prices.
With these facts in mind, minority business enterprises (MBEs) and corporate members need to come off the ledge and start planning for a profitable future. My suggestion is that MBEs sit down and conduct a serious review of their market strategy. This would involve:
• a market-environment scan designed to identify who their competitors are;
• an honest analysis of their respective strengths and weaknesses;
• a review of their operational efficiencies;
• a review of their pricing strategies; and
• a review and analysis of the constraints their companies face and how the MBEs plan to overcome them.
But the bottom line is, as Lao Tsu said over 2,000 years ago in the Tao Te Ching: “… A raging wind cannot blow all morning; nor a sudden rainstorm last throughout the day.” Get ready for the next expansion — now.
Dr. Fred McKinney, Ph.D., is the president and CEO of the Greater New England Minority Supplier Development Council. He holds an undergraduate degree in economics from the University of California, Los Angeles, and a Ph.D. in economics from Yale University. He has served on the faculty of Brandeis University and the University of Connecticut School of Business. He can be reached via e-mail at fmckinney@cmsdc.org.
