Beware the Ides of March, said David Meyer, editor in chief of our sister publication Business Travel News, as he introduced the first speaker at the National Business Travel Association Strategic Travel Symposium on March 15 in New York.
That first speaker, Bernard Baumohl, is the chief global economist for the Economic Outlook Group, based in Princeton, N.J.
Meyer, sticking with Shakespeare, then articulated the question everyone in the audience wanted answered by an economist: When will end the winter of our discontent?
A statistician, Baumohl gave odds rather than answers. But first, he painted three scenarios.
In the first and worst case, the economy will see a double-dip recession, in which we plunge again into recession rather than continue to recover. In this scenario, the stimulus package hasn't moved us to recovery but rather has masked our dependence on stimulus.
Economists supporting this view say that the modest growth we're seeing is simply a reflection of depleted inventories being replenished. They note that tight credit is still an issue, and there is real danger in the economic crises in some European countries. (He noted a new acronym circulating among economists: The shorthand for the troubled European nations is "the PIG countries," for Portugal-Italy-Greece).
Baumohl said he believes there is only a 15% probability that these pessimists are correct. If they are, he said, it would be a disaster for the U.S. economy. It would all but shut down travel, and prices for hotels and transportation would drop significantly.
The second possibility is what is being called "the new normal." In this scenario, recovery will be lackluster; it will take five to 10 years for the economy to reset. That period will be characterized by gross domestic product growth of 1.5% to 2.5% and a jobless recovery. Costs will remain stable or even move slightly lower, and there will be a modest rise in spending. Interest rates will crawl higher, inflation will stay muted, the dollar will depreciate and bank credit will remain scarce.
The likelihood of this anemic recovery actually occurring is about 30%, he said, a number which means "we have to take [this possibility] seriously."
Baumohl, however, is in the optimists' camp. The worst is over, he believes. "For the final three months of 2009, the economy grew at its fastest pace in six years," he noted. He predicts a true V-shaped trajectory, with robust growth and a full recovery in one to two years.
In support of his view, he first looked more closely at the "new normal" jobless predictions. Historically, jobs come back slowly. The 1990 recession put 1.5 million people out of work. The recession lasted just eight months, but it took two and a half years for all those jobs to come back. In 2001, 3.6 million were put out of work. Again the recession lasted eight months, but layoffs continued for a year and a half. It took three years before jobs were fully restored.
Our current downturn has cost us 8.4 million jobs and counting. If, in Shakespeare's words, past is prologue, jobs won't come back to pre-recession levels until sometime between 2015 and 2017.
But history has also shown that after a truly awful recession -- and he characterizes this as possibly the worst in our history -- economies bounce back vigorously. It is a pendulum swing, and the farther the pendulum goes out, the faster it speeds back in the other direction.
He believes that U.S. companies, which still sit on nearly $1 trillion in cash, have overreacted, cutting inventories, capital expenditures and jobs too far, and that they're beginning to understand that they need to get back in. The extra hours that workers are putting in will take their toll in fatigue and breakdown of quality control, and more people will be added.
He predicts substantial job growth beginning in early April.
While he puts the likelihood of a V-shaped recovery at 55%, he cautions that all bets are off if certain external factors occur. Rising oil prices can be a spoiler, he warned. Commercial real estate defaults can be worse than predicted, or credit can remain excessively tight. Europe's sovereign debt defaults could spread. China's credit bubble could burst. Iran could cross the nuclear threshold, Pakistan can lose control of its nuclear weapons or a major act of terrorism can occur.
I was encouraged to hear Baumohl lay out his case, though it's been my observation that economists, even star economists, tend to build arguments by selectively focusing on certain indicators. I wish I could take 55% to the bank.
We started with Shakespeare, and perhaps we should end with him. But I'm having difficulty settling on one quote. "The devil can cite Scripture for his purpose"? "Expectation is the root of all heartache"? "If you have tears, prepare to shed them now"?
I'm not inclined to go with something suggesting we are but pawns of fate rather than business owners and managers. "Beware the Ides of March" was spoken to Julius Caesar by a soothsayer. But destiny is perhaps better defined in another passage in the same play, when Cassius tells Brutus: "The fault, dear Brutus, is not in our stars, but in ourselves."
Whether the economy goes up or down, we must resist accepting that we are subordinate to it.
Email Arnie Weissmann at [email protected] and follow him on Twitter.