New Normal Economy USA

The New Normal
What do we need to prepare for as the new year approaches and the recession nears an end?
1
10/5/2009
By Les Deck for Vistage Groups 2243 and 2067

What’s “The New Normal”?
Term used as early as 2004 by author Robert McNamee in The New Normal
Term re-coined by Mohamed El-Erian, CEO of PIMCO (International Investment Mgmt. firm) in a May conference
Caught on in the press in early summer and continues as a catch phrase for a variety of economic theories and articles
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The New Normal Is
Americans living more frugally
Higher saving rate
More need based buying
More complex purchase decision process
Less impulse buying
Uncertainty about the future
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Why are Americans moving in these directions?
Reduced or no credit
Reduced opportunity for leverage
Need to pay down debt
Diminished disposable income
Loss of wealth
Fear of future
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Real Losses in American Economy
10 trillion in equities
8 trillion in home values
Current consumer debt 14 trillion (the size of the GDP in 2007)
American consumer has no viable choices other than to reduce lifestyle spending
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Fundamental Causes
Consumerism led to deficit trade balances
US dollars flowed to trade partners
US borrowed them back to finance cheap energy, easy credit, national defense
We bought from the cheapest places shipping millions of jobs abroad
UNSUSTAINABLE
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Orgy of Spending, Orgy of Leveraging
Americans stopped saving and pulled equity out of homes either spending on consumer goods or leveraging debt assuming increases in value
Financial community created and sold billions of $ in what became worthless financial instruments worldwide to make this possible
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How long do we plan for lower spending?
Some say we will invent new financial derivative products and return to the age of greed and consumption in a few years
I think we will face inflation (I remember the 1970s)Alan Beaulieu says inflation to start in 2014No one knows the rate (3-5% per year?)
Inflation results in contained spending, higher interest, tighter credit
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Project 10 years of reduced spending
Pain of the recession on current adults will make them more fiscally conservative
Fiscal conservatives raise a generation of fiscal conservatives
Next decades impacted by high costs in energy, health care, infrastructure investment and probably high defense costs
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US Economy
2007 GDP 14 trillion
If we recover to 20% below that figure we are still an economic Goliath at 11.2 trillion
This is a great place to live, work and play
There is and will be great opportunity for those who become students of change and adapt to it
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Purchase habits changing now
Need based: (bottom 20%) poor, young adult, old, typically little or no discretionary income
Wealthy: (top 20%) have $ can spend, lend or save. Making decisions carefully and without leverage
Mid 60% have choices, some discretionary income. Most authors say they will spend carefully and look for value
lower home ownershipin the center in coming years as debt is paid down
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Higher costs drive lifestyle spending changes
Smaller living spaces
Smaller more energy efficient cars
Longer lasting consumer products
More preventative healthcare
Better dietary habits
Sense of style?
Desire to buy local?
Lower carbon?
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Important Concepts for a Frugal Consumer?
Durability
High Quality
Sustainability
Energy Efficiency
High Value for $
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Assignment
What changes for you and your family?
What changes in demand for your goods and services?
What actions are indicated?
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Les Deck
561-740-4774
lesdeck@comcast.net

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New Normal Economy USA

by Les Deck on Apr 20, 2010

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