The Great Recession is Over:
What’s Next, and What Does
It Mean for Learning?
Fall 2010 CLO Symposium
Laguna Niguel, Calif...
Great Recession of 2008-2009
  Duration: Dec 07 – Jun 09
  18 months
  Severity
  GDP declined 4.1% (Gross Domestic Pr...
Great Recession of 2008-2009
Quarterly Change in GDP (at annualized rates)
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
200...
The Weak Recovery
Real GDP Growth
  This recovery
  2009:3 1.6%
  2009:4 5.0%
  2010:1 3.7%
  2010:2 1.6%
  Ave 3.0%...
The Weak Recovery
Average Monthly Job Growth
  This recovery
  2009:3 -261,000
  2009:4 -90,000
  2010:1 87,000
  201...
What Is Different About This
Recession ?
  First recession caused or accompanied by a
financial panic since 1929
  Finan...
What Is Different About This
Recovery?
  First recovery requiring massive deleveraging
since the 30s
  Consumer debt
  ...
Causes of Recessions
  Misjudgment
  Over building
  Over consuming
  Over borrowing
  Schemes to get rich
  Monetar...
A History of Recessions
  12 since 1945
  Previous worst was 1981-1982
  6 from 1918–1944
  Great Depression 1929-1933...
The Great Recession
  Worst by all measures since the 30s
  First to involve a panic since 1929
  Time required for
  ...
The Economic Outlook
  Weak to average growth into 2011
  Not the strong growth after 1982
  Key is consumer spending
...
What Has Been the Policy
Response?
  Financial panic contained
  Monetary Policy
  Short-term interest rates to near 0%...
Policy Prospects and
Implications for 2011
  Monetary policy
  Little room for further reductions
  But low rates will ...
Closer Look at Fiscal Policy
Does stimulus work?
  Did the $800B keep unemployment
from rising above 8.5%?
  No. But doe...
GDP Growth
2008:1 -.7%
2 .6%
3 -4.0%
4 -6.8%
2009:1 -4.9% stimulus passed Feb 17
2 -.7%
3 1.6%
4 5.0%
Average Monthly Job Growth
2008:1 -31,000
2 -191,000
3 -334,000
4 -652,000
2009: 1 -753,000 stimulus passed Feb 17
2 -477,...
Conditions Where Stimulus
Will Not Work
  Economy at full employment
  Taxpayers save their “portion” of the deficit +
i...
US Federal Budget Deficit
  2009 Deficit = $1.4 trillion
  Largest $ amount in US history
  Largest in relation to size...
The Budget Deficit for 2010
  The Projections
  Receipts $2.143 trillion 14.6% of GDP
  Outlays $3.485 trillion 23.8% o...
Budget Realities
(From 2010 Budget without tax increase)
May 2, 2008 David Vance 20
US Federal Budget Deficit
Percent of GDP 1947-2009
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
'80 '90 '00 '09
Receipts as a Percent of GDP
1947-2009 Ave ‘47-’07 = 17.8%
0%
5%
10%
15%
20%
25%
'80 '90 '00 '09
Outlays as a Percent of GDP
1947-2009 Ave ’47-’07 = 19.5%
0%
5%
10%
15%
20%
25%
30%
'47 '80 '90 '00 '09
Implications of Persistent
Budget Deficits
  Economy
  Upward pressure on interest rates
  People worry about future ta...
Implications of Persistent
Budget Deficits
  Business
  Higher interest rates => lower profit
  Higher taxes => lower p...
Fiscal Policy in 2011
  So, don’t expect any more large stimulus
packages unless economy goes back into
recession
  Do e...
Fiscal Policy for 2011
  Greater clarity on health care policy
  Reduce (?) uncertainty
  Energy policy (?)
  Off the ...
Rest of World Outlook
  Europe
  Good growth at 4%
  Little chance of double dip
  China
  Strong growth at 10%+
  B...
Economic Outlook
  Weak growth into 2011
  Double dip possible but unlikely without an
unforeseen event
  Look for GDP ...
What Could Go Wrong?
  Tax increases in 2011
  Deficit and debt anxiety
  Lack of cohesive plan to reduce deficit
  Da...
Impact on Learning
  2011 Budgeting to occur in a weak and
uncertain environment
  Some businesses are fine and budgets ...
Implications for Learning
  More important than ever to align
learning to your organization’s highest
priority goals
  D...
Implications for Learning
  More important than ever to align
learning to your organization’s highest
priority goals (con...
Implications for Learning
  More important than ever to build a
business case for discretionary learning
  Proactive. Co...
Implications for Learning
  Excellent opportunity to start, refine or
expand certain programs
  Business acumen
  Leade...
Implications for Learning
  Create a more flexible cost structure
  Use part-time employees, consultants,
partners and v...
Implications for Learning
  Once in a decade opportunity to create
the learning function you want.
  By building from a ...
Conclusion
  Good news: Great Recession is over
  Bad news:
  Recovery will be slow
  Limited means to speed up recove...
Conclusion (continued)
  Manage the learning function
appropriately for this environment
  Align learning to highest pri...
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The Great Recession Is Over: What’s Next, and What Does It Mean for Learning?

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The good news is that the Great Recession of 2008-2009 is over and economic recovery is under way. The bad news is that business cycles are still very much alive, meaning the current recovery will eventually be followed by another recession. After sharing the current economic outlook, Dave Vance will talk about the history and nature of business cycles and when and why we might expect the next recession. He will conclude with the implications for business and for learning and development, including suggestions for short- and long-term planning.

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The Great Recession Is Over: What’s Next, and What Does It Mean for Learning?

  1. 1. The Great Recession is Over: What’s Next, and What Does It Mean for Learning? Fall 2010 CLO Symposium Laguna Niguel, California September 27-29, 2010 Dave Vance
  2. 2. Great Recession of 2008-2009   Duration: Dec 07 – Jun 09   18 months   Severity   GDP declined 4.1% (Gross Domestic Product)   8.4 million jobs lost   Unemployment rate rose from 4.4% to 10.1%   Triggered by decline in housing   Made worse by financial panic of late ‘08
  3. 3. Great Recession of 2008-2009 Quarterly Change in GDP (at annualized rates) -8.0% -6.0% -4.0% -2.0% 0.0% 2.0% 4.0% 6.0% 2007 2008 2009 2010
  4. 4. The Weak Recovery Real GDP Growth   This recovery   2009:3 1.6%   2009:4 5.0%   2010:1 3.7%   2010:2 1.6%   Ave 3.0%   Severe recessions (first four quarters)   73-75 6.2% 81-82 7.8%   Mild recessions (first four quarters)   90-91 2.6% 00-01 1.9%
  5. 5. The Weak Recovery Average Monthly Job Growth   This recovery   2009:3 -261,000   2009:4 -90,000   2010:1 87,000   2010:2 190,000   2010:3 -54,000   Ave -26,000   Severe recessions (first five quarters)   81-82 310,000   Mild recessions (first five quarters)   90-91 40,000 00-01 -55,000
  6. 6. What Is Different About This Recession ?   First recession caused or accompanied by a financial panic since 1929   Financial crises tend to produce more severe recessions and have slower recoveries   First time home prices have declined nationally since the 30s   Last two recessions were very mild   Housing, car sales did not decline in 00-01   No inoculation against excessive behavior   30 years since a serious recession
  7. 7. What Is Different About This Recovery?   First recovery requiring massive deleveraging since the 30s   Consumer debt   Government debt   Bad bank loans   First recovery where housing prices have been down (about 20% nationally)   First time we have run out of ammunition   Taxes at a 60 year low   Spending at a 63 year high
  8. 8. Causes of Recessions   Misjudgment   Over building   Over consuming   Over borrowing   Schemes to get rich   Monetary policy   Fiscal policy   Transitions to peace time
  9. 9. A History of Recessions   12 since 1945   Previous worst was 1981-1982   6 from 1918–1944   Great Depression 1929-1933   Recession of 1937-1938   15 from 1857-1928   Panic of 1873 known as The Long Depression   Panic of 1893   Bankers Panic of 1907
  10. 10. The Great Recession   Worst by all measures since the 30s   First to involve a panic since 1929   Time required for   Home prices to adjust   Consumers to pay down debt   Personal savings rate to rise   Banks to rebuild balance sheets
  11. 11. The Economic Outlook   Weak to average growth into 2011   Not the strong growth after 1982   Key is consumer spending   Business spending has been strong   Hiring will pick up when demand increases   Already is in manufacturing for export and to rebuild inventories   Consumer and business confidence needs to return
  12. 12. What Has Been the Policy Response?   Financial panic contained   Monetary Policy   Short-term interest rates to near 0%   Long-term rates to 40-50 year lows   Fiscal Policy   $800B stimulus   Tax cuts   Aid to states to prevent layoffs, unemployment aid   Infrastructure, project spending   Further extension of unemployment benefits
  13. 13. Policy Prospects and Implications for 2011   Monetary policy   Little room for further reductions   But low rates will eventually stimulate borrowing   Fiscal policy   Impact of stimulus spending is waning   And large deficit limits ability to provide further stimulus
  14. 14. Closer Look at Fiscal Policy Does stimulus work?   Did the $800B keep unemployment from rising above 8.5%?   No. But does that mean it had no impact or made things worse?   No way to prove impact but consider   GDP growth   Jobs
  15. 15. GDP Growth 2008:1 -.7% 2 .6% 3 -4.0% 4 -6.8% 2009:1 -4.9% stimulus passed Feb 17 2 -.7% 3 1.6% 4 5.0%
  16. 16. Average Monthly Job Growth 2008:1 -31,000 2 -191,000 3 -334,000 4 -652,000 2009: 1 -753,000 stimulus passed Feb 17 2 -477,000 3 -261,000 4 -90,000 2010: 1 87,000
  17. 17. Conditions Where Stimulus Will Not Work   Economy at full employment   Taxpayers save their “portion” of the deficit + interest   Called rational expectations   All tax cuts (not offset by spending cuts) saved   Spending portion (not offset by tax increases) saved   Deficits produce anxiety leading to loss of confidence
  18. 18. US Federal Budget Deficit   2009 Deficit = $1.4 trillion   Largest $ amount in US history   Largest in relation to size of economy since WWII   2009: 9.9% of $14.2 trillion GDP   1943: 31% of $199 billion GDP (peak % in WWII)   1934: 5.9% (peak % in 30s)   2010 Deficit = $1.3 trillion (projected)   9.1% of $14.7 trillion GDP   Federal debt held by public up from 40% (2008) to 69%   CBO projects deficits through 2020 even with 2011 tax increase and no AMT relief
  19. 19. The Budget Deficit for 2010   The Projections   Receipts $2.143 trillion 14.6% of GDP   Outlays $3.485 trillion 23.8% of GDP   Deficit $1.342 trillion 9.1 % of GDP   Receipts are only 61% of outlays
  20. 20. Budget Realities (From 2010 Budget without tax increase) May 2, 2008 David Vance 20
  21. 21. US Federal Budget Deficit Percent of GDP 1947-2009 -6% -4% -2% 0% 2% 4% 6% 8% 10% 12% '80 '90 '00 '09
  22. 22. Receipts as a Percent of GDP 1947-2009 Ave ‘47-’07 = 17.8% 0% 5% 10% 15% 20% 25% '80 '90 '00 '09
  23. 23. Outlays as a Percent of GDP 1947-2009 Ave ’47-’07 = 19.5% 0% 5% 10% 15% 20% 25% 30% '47 '80 '90 '00 '09
  24. 24. Implications of Persistent Budget Deficits   Economy   Upward pressure on interest rates   People worry about future tax increases   Possible downgrade of US debt   Inflation if we print money   Loss of control to China, others
  25. 25. Implications of Persistent Budget Deficits   Business   Higher interest rates => lower profit   Higher taxes => lower profit   Both => cut costs   Consumer   Higher taxes=> lower spending   Prospect of higher taxes=> higher saving, lower spending
  26. 26. Fiscal Policy in 2011   So, don’t expect any more large stimulus packages unless economy goes back into recession   Do expect a plan to reduce budget deficits   Should reduce uncertainty and increase confidence   Extension of 2003 tax cuts   One or two years   Should be for all
  27. 27. Fiscal Policy for 2011   Greater clarity on health care policy   Reduce (?) uncertainty   Energy policy (?)   Off the table with Republican gains   Would reduce uncertainty   Divided government   Fewer major new initiatives   Potential to reduce deficits
  28. 28. Rest of World Outlook   Europe   Good growth at 4%   Little chance of double dip   China   Strong growth at 10%+   BRICs   Brazil 8% Russia 5%   India 8% China 10%   Latin America   Good
  29. 29. Economic Outlook   Weak growth into 2011   Double dip possible but unlikely without an unforeseen event   Look for GDP growth of 2%-3%   Little improvement in jobs or unemployment rate   Interest rates remain low   Better growth in 2012   Most excesses worked off   Impact of low rates
  30. 30. What Could Go Wrong?   Tax increases in 2011   Deficit and debt anxiety   Lack of cohesive plan to reduce deficit   Danger of self-fulfilling prophecy   Panic 2   Mideast War, resurgence of terrorism
  31. 31. Impact on Learning   2011 Budgeting to occur in a weak and uncertain environment   Some businesses are fine and budgets will be good   Many others are still struggling   State and local governments are particularly bleak   2012 is first hope for a strong budget for many
  32. 32. Implications for Learning   More important than ever to align learning to your organization’s highest priority goals   Do this proactively and strategically   Capture in scorecard   Report progress monthly   Keep organization’s goals and progress against goals visible
  33. 33. Implications for Learning   More important than ever to align learning to your organization’s highest priority goals (continued)   Don’t spread yourself too thin   Better to ensure success for a few initiatives than risk failure on many   Governing board can help   Focus on unaligned, general learning if cuts are required
  34. 34. Implications for Learning   More important than ever to build a business case for discretionary learning   Proactive. Completed in conjunction with strategic alignment and completed before the year begins   Bring costs and expected impact and/or benefits together   Jointly created with stakeholder
  35. 35. Implications for Learning   Excellent opportunity to start, refine or expand certain programs   Business acumen   Leadership   Managing in uncertainty   Use recession and its impact on business as case study   Use leaders as teachers
  36. 36. Implications for Learning   Create a more flexible cost structure   Use part-time employees, consultants, partners and vendors to increase your variable cost structure   If you have downsized, now is the perfect time to begin building a more flexible structure
  37. 37. Implications for Learning   Once in a decade opportunity to create the learning function you want.   By building from a low base   Less painful than redeploying or firing staff   Especially when combined with a compelling business case
  38. 38. Conclusion   Good news: Great Recession is over   Bad news:   Recovery will be slow   Limited means to speed up recovery   Budget deficit will play a major role in policy for next 10-15 years (at least)   Interest rates going higher   Pressure on costs to remain   Plan for next recession in 2017-2019
  39. 39. Conclusion (continued)   Manage the learning function appropriately for this environment   Align learning to highest priorities   Decrease unaligned learning. Focus   Create business case and plan   Increase variable cost structure   Increase business acumen of your staff   Create the structure that will allow you to succeed
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