The New Normal Will Not Last; in 2 to 4 Years, Normal Will Reassert Itself

One hears talk of post-Covid-19 new normal that results in permanent changes in business and consumer behavior. 

But we heard the same analysis in the wake of the 2008 great recession. Permanent slow growth was supposed to be the new normal.  It did not last. 

source: Statista

source: Statista

Some confidently predicted that U.S. firms would never again make as much use of leverage as they had going into 2018.  In fact, trends in use of leverage in financial markets suggest there is nothing permanent about new business attitudes towards financial leverage.  Use of leverage soared, post-great recession, to new levels. 

source: Seeking Alpha

Likewise, many analysts suggested consumer behavior had fundamentally changed as a result of the 2008 recession. Consumers would remain wary of debt, it was suggested. That also proved to be incorrect. To be sure, consumers were more cautious for half a decade, but eventually returned to their old ways. 

source: Marquette Associates

Consumer saving rates grew in the wake of the great recession, but only for perhaps four years. 

source: Federal Reserve Bank

The cruise industry saw price declines in the wake of past recent recessions or event shocks as well, and most expect a slow recovery for cruise line activity in the wake of the pandemic. But other shocks--the internet bubble collapse, the SARS epidemic, the 2008 recession and Costa Concordia disaster of 2012 all led to price weakness. It took about five years for prices to recover. 

source: Market Insider

After the 2008 recession, consumer spending was back up to pre-recession levels. 

source: Bureau of Economic Analysis

To be sure, the recession of 2008 likely accelerated trends that already were happening, but also lead to at least a temporary emphasis on simplicity, thrift and fickle changes in preferences. Green and ethical consumerism would wane, some predicted. None of those trends lasted. 

So despite all the talk of the new normal, we are likely to see a reversion to the mean after a few years. Linear extrapolations from current behavior are likely to be wrong, as they have been wrong in the past. The new normal will not likely last very long. Eventually, we will return mostly to the original normal, with the caveat that all underlying fundamental trends are likely to remain intact.