Change Is The Only Constant

Change Is The Only Constant

The most difficult task for any columnist is to project, due to publishing deadlines, what the major industry-related issues will be and what readers will be interested in three months down the road. But one would literally have their head in the sand not to recognize that the upcoming elections in November will be one of the issues causing the buzz when this issue hits the streets.

Everyone already knows the 2010 elections are significant and competitive. Let’s add record-setting to that description. Why?

- 2010 features the most U.S. Senate seats on the November ballot (37) since 1962.

- 2010 also has the most elections for governor ever on the same ballot (also 37).

- 2010 has produced one of the highest percentages of Democratic-versus-Republican House lineups in modern history. Fully 405 of 435 House races have both a Democrat and a Republican running for the seat. Democrats have nominated 410 candidates for the House and Republicans have an even larger number, 430. For the GOP, this is the most congressional districts they have ever contested.

Elections always matter, and citizens should vote. But if the past is predictive, only about 40 percent of adults in the United States will cast a ballot in 2010, as opposed to a much larger 63 percent in 2008. Perhaps the record number of elections–not to mention the high stakes–will encourage more Americans to participate this fall.

Economic Analysis

If history shows us anything, we know the state of the economy leading up to elections is often an important factor affecting the outcome. The latest recession has been the most egalitarian of all the 11 recessions since World War II. In various ways, it has touched every social class through job loss, pay cuts, depressed home values, shrunken stock portfolios, eroded retirement savings, grown children returning home–and anxiety about all of the above. The Great Recession (as it is widely called) has changed America psychologically, politically, economically and socially. Just how will be examined and debated for years.

All of this reminds me of one of my favorite passages from Paul Seabright’s “The Company of Strangers.” The author refers to “politicians,” but the discussion may as well refer to any member of the crew. It goes like this:

“Politicians are in charge of the modern economy in much the same way as a sailor is in charge of a small boat in a storm. The consequences of their losing control completely may be catastrophic (as civil war and hyperinflation in parts of the former Soviet empire have recently reminded us), but even while they keep afloat, their influence over the course of events is tiny in comparison with that of the storm around them. We who are their passengers may focus our hopes and fears upon them, and express profound gratitude toward them if we reach harbor safely, but that is chiefly because it seems pointless to thank the storm.”

Nonetheless, the lackluster performance of the economy has prompted some to refer to the post-Great Recession as the Great Stall. In fact, since the recession started in the fourth quarter of 2007, the common theme has been about Americans cutting back on their spending. But the latest numbers from the U.S. Bureau of Economic Analysis show aggregate personal consumption expenditures are up 2.9 percent, or $285 billion. So we must be spending more on something!

In reviewing the data, right there at the top is America’s love affair with mobile devices, where spending has soared almost 17 percent since the recession started. Some would even go so far to say we are in a bit of a communications boom, as spending on wired, wireless and cable services has risen by 5 percent.

In addition, Americans still care about their pets, their children, their hair (a highly overrated commodity if you ask me) and their guns. Of course, the data also shows a big gain in spending on education, healthcare and housing, but it’s impossible to know how much of that increase is actually coming out of the pockets of households. Education spending includes government tuition aid and spending by private nonprofits out of their endowments and contributions; healthcare spending includes Medicare, Medicaid and employer-paid insurance; and housing includes a huge imputation for owner-occupied housing, which may or may not correspond to an actual increase or decrease in out-of-pocket spending.

Once we take those three huge categories out of the data, the remaining personal consumption expenditures have actually gone down by 0.6 percent since the recession started. If one looks at the types of spending categories that have gone down, you’ll notice Americans are spending a little bit less on clothing and hotels; a lot less on foreign travel, video and audio equipment (think big-screen televisions), and furniture. The big drop, though, has come in motor vehicles and associated goods and services, like gasoline. Luxury items, in other words, not necessities have been hit the hardest. So it’s all the more important for us to convey our value proposition so consumers view our products and services as necessities in their lives, not mere luxuries.

Making Strides, Slowly

However, as I have said in this column before, I believe the recovery will continue to move ahead, but at a modest pace and unemployment will gradually come down. Impediments to growth are slowly being removed. The functionality of the financial market is being restored. Private balance sheets are being repaired and necessary structural adjustments are under way. The past few weeks, however, have seen a slight retrenchment from the mindset of optimism and growing confidence that prevailed earlier in the year. One reason is the roller-coaster effect of recent economic indicators. More influential, in my opinion, is the heightened sense of uncertainty and risk surrounding the near-term outlook.

But it bears remembering that all deeply distressing experiences–whether they are national economic and financial crises, regional environmental calamities with associated economic pain, or traumas on a personal level–are followed by a strong impulse to return to normalcy. This urge also applies to our industry, so stay the course. In the words of R.I. Fitzhenry, uncertainty and mystery are energies of life. Don’t let them scare you unduly, for they keep boredom at bay and spark creativity.

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