Is the Recession Really Over?

By John Honovich, Published Nov 06, 2009, 07:00pm EST

Optimism continues to increase about a growing global economy and a rebounding security industry. There's little doubt that spending is heading back up across the globe after significant losses in the past 12 months. And, no doubt, more spending is better for businesses. [See a SSN segment interviewing security professionals [link no longer available] on the receding recession.]

Will Rising Spending Last?

Rising spending does not guarantee long term economic growth. Indeed, rising spending can mask major problems. For instance, so much of recent US economic growth comes from the housing credit [link no longer available] and the "Cash for Clunkers" program.

A Child Example

Imagine a 10 year old who measures success based on eating candy. The child uses his allowance to buy candy.

The child does not do his homework and the parent cuts the child's allowance.

At first, the child eats less candy and is depressed. Then the child returns to eating the same amount of candy by digging into his stash of candy and borrowing candy from his school friends. However, the child does not start doing his homework.

The child is back to easting as much candy as before but is this really a healthy situation?

The Future of the Global Economy

Making business decisions and forecasting industries is faced with similar uncertainty (as we note in our own IP video market forecast).

We see 3 possible paths:

  1. There never was any fundamental economic problems, this was just a regular recession and the economy should recover strongly and stably. That is, the child was doing their homework.
  2. There are fundamental economic problems but the short term spending is holding us over until we fix those problems. That is, the child is eating candy from his stash but will soon start doing homework and will be fine in the long term.
  3. There are fundamental problems, those problems are not being resolved and the short term spending is simply covering up the lack of progress. That is, the child is going to be in serious trouble as he runs out of his stash of candy and still does not do his homework.

If you are making business decisions, it's important that you determine your position on these paths. At least in the US, path 1 seems to be completely unrealistic. The problems were almost certainly fundamental and the only question is whether or not we are actually resolving them.

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