by Donald Herman

Created on: November 07, 2008   Last Updated: November 13, 2008

The current economic downturn is unique in that there are several factors which are not normally present at the same time. This union of negative forces will alter the recovery time and negate any possibility of a rapid, "V" shaped upturn. One can expect that the "U" shaped pattern itself will be an abnormal one and perhaps should even be viewed as a flattened "W" pattern. One glaring factor in recovery potential is that America is no longer the world's global manufacturing giant and has moved toward a consumer nation. This affects recovery time and the height of the recovery cycle in that a negative balance of trade does not provide an influx of foreign capital and requires the US to rely on internal working capital.

The current global situation, coupled with an across the board economic meltdown has not been present since the Great Depression and alters the ability of any one sector to bolster another depressed segment. In addition to concrete economic factors there is a significantly negative, consumer intangible; confidence. The consumer is the major fuel for America's economic engine and their negativity controls much of the durable goods production as well as retail inventories. The cautious spending by consumers will prolong the economic downturn in that factory orders will be diminished and further layoffs inevitable. The only positive from the consumer's altered spending pattern will be in the credit markets since there will be reduction in short term debt and therefor a cash infussion into the financial system. This will still not be realized throughout 2008 however, since the consumer will acquire additional debt through the holiday season. The draw down of debt will begin in early spring, as the winter heating costs are minimized and the inflationary pressures are reduced with lower fuel costs and the pass through of costs attributable to the summer run up in gasoline and diesel fuels.

The nation is currently in a chicken/egg controversy in that the question is; which will be the initial inpetus that begins the restructuring of the economy. Given that factory orders are down for the near term, it is clear that there will be a neccessity to restock inventories and thereby increase factory output. The financial sector will benefit from the federal stimulus package as well as the reduction of consumer debt so that capital will be available to fund growth. Certain durable goods will need to be replaced as well as many consumable goods, so that consumers will purchase a variety of products. Fuel prices will continue to be low so that production and transportation of goods will be lower than 2008 and provide less expensive products without retailers subjected to deep discounts to make a sale.

All recovery factors will therefore be in place and positive by mid 2009 and will depend only on the consumer spark to reignite the economy. As always the economy is contingent on the consumer and the confidence that they will have a stable income and that inflationary pressures are in check will be the key to that spark. The "W" pattern will manifest itself as various factors impact the consumer and whether those factors are perceived as trends or as blips on the radar. If the Iraq/Afghan wars are being reduced and the new president proves to be effective (including a currently ineffective congress), consumer confidence will permit the economy to expand and regenerate employment. This will begin the upward leg of the traditional "U" pattern and end one of our major economic crises.

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