Even with a new administration in the White House and a federal economic stimulus package on its way, the economic outlook is bleak as companies continue to shed costs. While there may be signs of recovery in six months, the reality is that it will not be business as usual until 2011, according to the IBISWorld Recession Briefing.
IBISWorld expects the U.S. economy to contract by 1.6 percent in 2009, to grow only 1.4 percent in 2010 and to grow 2-3 percent in 2011.
“Stability is the first issue, and with the current data, we have not seen stability in a lot of the economic measures,” said George Van Horn, senior analyst. “If the stimulus plan does help add stability, maybe you’ll see it by the second half of this year. [And] with stability will come confidence, and the economy will start to recover as we go through 2010.”
On Tuesday the U.S. Senate passed President Barack Obama’s stimulus package, which is expected to be more than $800 billion. Now the House and Senate will meet to finalize the bill. The hope is that it will be on Obama’s desk before the end of week. It is not a cure-all, however, and will only provide some relief, according to Van Horn.
“We finished 2008 on a fairly pessimistic note,” he explained. “From a fiscal responsibility standpoint, everybody [has] more of a wait-and-see attitude [with the stimulus plan]. This gets back to the whole financial system and concerns. Have all of the issues with financial loans and credit availability really been resolved? No, we’re still struggling with that.”
IBISWorld expects this to be one of the longest recessions in the post-war era, according to the briefing, because consumers have been hit hard too. They face job insecurity, and the values of their homes and retirement funds continue to dwindle. Many organizations already have responded to the economic situation with layoffs, hiring freezes and wage cutbacks.
“Basically, the business reaction is to reduce capacity,” Van Horn said. “Businesses across the gamut are cutting back on capacity because the total demand for their products and services is starting to slow down if not absolutely decline. “
Despite the dismal situation in the United States, world GDP will continue to grow in 2009, but at a slower pace than in recent years, according to IBISWorld. Even though the United States and Europe are in a recession, Brazil, Russia, India and China (BRIC) continue with strong performance.
As far as industries go, some will hurt more than others. Approximately 47 percent of U.S. industries will be negatively affected by this economy, 37 percent will be minimally impacted, 10 percent will be disastrously affected and 5 percent will make money.
“Not surprisingly, with the origin of the downturn, the financial-services sector could be considered a disaster,” Van Horn said. “At the other end of the extreme, retailing [was] a very competitive industry even before this financial crisis. Now with the financial crisis hitting the consumer as hard as it is, they’re also facing some very strenuous conditions, and a lot of companies won’t survive.”
To weather this storm, organizations must become as “lean and mean” as they can until conditions get better, Van Horn said.
“In these periods of extreme stress, certainly cost curtailment is the primary objective whether it be labor costs, reducing capital expenditures or even as simple as just running inventories as low as conceivably possible,” he explained.
