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Through the Fog |
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The forecast for the year ahead includes glimpses of sun amid the murk — and some tips for navigating through uncertainty
SCENE ONE: On an unseasonably balmy day, even for San Diego, a man shopping for his sweetheart’s birthday finds himself nine deep in line at Victoria’s Secret. He remarks to the woman behind him that he’s surprised to be standing in a long line for lingerie during the worst economic crisis since the Great Depression, and she replies, “We’re in denial.” That night, he takes the birthday girl out for an evening on the town, and finds the bars and restaurants in the Gaslamp humming, with pedestrian traffic so thick it’s impossible to walk two abreast.
Scene two: A woman is shopping for a Kindle, Amazon.com’s pricey ($359) electronic book reader. When she finds out there will be a four-week wait, she thinks sales must be so slow they’ve cut back on production. Chatting with customer service, however, she learns Kindles are so popular, they’re back-ordered. She gets on the list. When she checks the Kindle situation the next day, Amazon.com has posted a “SOLD OUT” sign.
Scene three: A couple is in the market to replace all the windows in their home with energy-saving vinyl models. After trying unsuccessfully to get several vendors even to bid on the job, a window man eventually comes out to measure the project. Nevertheless, there’s an eight-week delay for installation. “We’re jammed up right now,” he says with a shrug.
Don’t be concerned if these anecdotal tales are at odds with the conventional wisdom pouring out of Washington, state capitals, think tanks and universities. A pea soup-caliber fog has enveloped discussions of economies, global and national, state and local. Experts use the phrase “uncharted territory” often, and here’s why:
“This is unlike any other recession,” says James Hamilton, professor of economics at the University of California, San Diego. “What makes it different is the role of the Federal Reserve. Usually, as we go into a recession, the Fed cuts short-term interest rates, but we already have [bank] rates at around [zero] percent. So that bullet has been shot, and the monster still isn’t dead.”
Hamilton says indicators point to a continuing deterioration, which is making him “a little nervous. Most recessions wouldn’t last more than 16 months, but we’re told we’re already a year into this one. Given the difference in the dynamics of this recession, I’m not really confident saying when we’re going to see a turnaround, or what sector is going to help launch it.”
Locally, the University of San Diego’s Index of Leading Economic Indicators is on course for a three-year losing streak, and economist Alan Gin isn’t fielding questions on how much the economy might grow in ’09 but whether it will contract.
“That’s a good question,” he says. “I’m looking for some sort of rebound in the second half of ’09, but we’ll probably have a net decline for the year.”
MORE-DETAILED ANALYSES reveal similar sentiments. A late-2008 report from Standard & Poor’s Case-Shiller Index says local housing prices still may not have reached bottom, and optimism over sporadically increasing sales has been discounted because many of the houses sold were foreclosures.
Tourism, another pillar of our region’s diversified economy, is flat and expected to remain so, as consumers and businesses both retrench on spending.
“San Diego tourism experienced a roller coaster of a year in 2008, with some months performing well while others struggled,” says San Diego Convention & Visitors Bureau CEO David Peckinpaugh. When the 2008 numbers are all in, “We will be down in occupancy, down in average rate and overall visitation compared to 2007.
“2009 presents bigger challenges as businesses try to get a handle on the year ahead,” he says. “Forecast models predict a continued decline in occupancy and average rate, with a potential strengthening in the market during the last six months.”
Biotech might be another turnaround agent, but experts say chances for improvement rely mostly on government spending. “Big Pharma [which has investments in many local biotechs] may be a sector of interest via a more comprehensive healthcare coverage package,” says Bud Leedom, Californiastocks.com editor, “although most of these companies are suffering from their licenses going to generic products that drive down profits, and from poor product pipelines.
Silver lining?
“San Diego went into recession before the rest of the country,” says Kelly Cunningham, economist for the San Diego Institute for Policy Research. “We could be one of the first areas to see some sort of recovery in housing, because unlike Phoenix or Las Vegas we were not so overbuilt. Even so, our home prices were way out of balance.” Cunningham looks for the recession to persist for the first two quarters but holds out hope for “some growth later in the year.”
SINCE MOST ENTERPRISES are not among the lucky few that can afford to hang a “GONE FISHING” sign on the door in the interim, businesses are wondering how to use the down time productively — to rethink operations, reengineer products and generally do all that out-of-the-box thinking, now that the box is no longer delivering.
Mike Blomgren, a former director of operations with aerospace manufacturer Hamilton Sundstrand who teaches a workshop on “Thriving in Chaos,” says the current economic climate is an excellent opportunity to invest in the workforce.
“It’s a great time for businesses to jump into training, to better prepare themselves so that as they come out of the tough times, they are even stronger when business starts moving,” Blomgren says. “Some will see the opportunity, and others will cut back, but the ones that invest [in themselves] will come out a lot stronger.”
As far as revenue-producing suggestions, Blomgren says to think about complementary businesses. “There may be a way to add on a service or two that complements your core businesses and drive revenue,” he says. “In the aerospace industry, we’d see the aircraft going down the assembly line, and we’d say, ‘What else can we do with these parts?’ What else can you do with your business? Think of a hair-and-makeup business for special events, which my wife has. We feel passionately about photography, so we’ve added that to the business.”
Another idea is to dust off that whiteboard and play the “blue-ocean competitive canvas mapping strategy,” says Angela Hill, president of Incitrio, a marketing, branding and new-media company. “You create a chart of your company and plot out what you do well and your weaknesses,” she says. “You do the same for your competitors and then create an analysis of how you rank.”
Then you concentrate on differentiation with an eye to reducing, raising, creating or eliminating some data points versus the competition. “If you do that to enough data points, you create a blue ocean,” Hill says, “or a situation where you have eliminated the competition because you changed enough variables.”
A successful model of blue-ocean thinking is Cirque du Soleil. “They surveyed traditional circuses, musicals, theater and performing arts, and they started changing variables,” says Hill. Their venue is a parking lot, which is less expensive to rent than a sports arena. Circus animals? Laid off. Some fans don’t approve (think PETA), and they’re a huge expense to feed and transport. Cirque du Soleil also upgraded the caliber of the performers and the music, most recently landing a Beatles score.
“This enabled them to charge more,” Hill says. “They don’t have competition, and they’re profitable.”
UCSD’s Hamilton says he has a clue about the increase in consumer spending. “The drop in gasoline prices is certainly good for U.S. consumers,” he says. “We consume 142 billion gallons of gas a year, so every dollar drop in the price of gas is $142 billion in spending power.”
Someday we may look back on the recession and take pride in how we persevered. In the meantime, stay solvent, San Diego.
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