Showing posts sorted by relevance for query recession. Sort by date Show all posts
Showing posts sorted by relevance for query recession. Sort by date Show all posts

Tuesday, December 9, 2008

Mass Media Will Miss the Bottom...Again....

Count on the mass media to miss the "bottom" of the present recession: they always do. You now are seeing headlines about layoffs at larger and mid-sized companies.
Economists now say we have been in recession since December 2007. The only good news there is that one year of the recession already has passed.

So whether you think this is a garden-variety recession or a longer one, the average recession lasts 18 months. By the end of the year we'll have been in recession a full 13 months. And layoffs always are a lagging indicator.

So as you note news reports about job losses, keep one thing in mind: when we reach the peak of the job losses, the recession will have hit bottom and the recovery will have begun.

Peak job losses in the 2001 recession were 325,000, which were reported in October, the last month of that recession. Peak losses during the 1990-91 recessions—306,000—were reported in February 1991, again one month before the recession ended.

During the 1981-82 recession, peak job losses were 343,000, a figured reported four months before the end of the recession. A bottom in the labor market often indicates the near bottom of a recession, since employment is a lagging indicator.

There are implications for service providers. Though not every company is as cash rich as Cisco or Apple, opportunities to take market share or reshape a market always present themselves in a recession.

And there is clear evidence that in some customer segments, such as small business, hiring actually increased every month of 2008, says SurePayroll, a company that makes its living processing employee payroll checks (through the end of November, the last month where data is available).

Hiring tends to drive increased buying of communications products, so whatever weakness you think you will see in the enterprise segment, small business trends could well be quite different.

Monday, March 23, 2020

What Happens After Covid Pandemic Ends?

Economists do not agree on what will happen to economic growth globally once the Covid-19 pandemic ends. What seems clear is that it matters when it ends.

Though some early on might have believed a recession is not inevitable, that seems a dashed hope.

Almost everyone seems to agree that a couple of quarters of reduced revenue is inevitable, with full-year gross domestic product down 12 percent to 13 percent. 

When asked about the potential impacts on revenue and, or, profit this year, 58 percent of chief financial officers surveyed by PwC in the first week of March 2020 expect a decrease, while 40 percent say it’s too difficult to assess at the moment. 

A majority of respondents (90 percent) believe their business would return to normal within three months if the coronavirus were to end immediately.

Global gross domestic product could shrink from $2 trillion to $9 trillion from the Covid-19 pandemic, roughly one percent to two percent from pre-pandemic levels, depending on the severity of the pandemic, a study by Brookings indicates. Some believe economic growth has a chance to grow in the second half of the year.

Some believe that might be optimistic. Other estimates suggest seven percent drop in U.S. GDP in 2020 alone, representing a recession as bad or worse than that 2007/9 economic contraction. But at least one study of the economic impact of the global influenza pandemic of 1918 suggests growth might not suffer for very long, and could in fact see economic growth accelerate after a couple of years. 

“A recession is now all but certain, according to a Wall Street Journal survey of 34 economists, which projects a downturn that would last months at least, and would in some ways rival—and possibly even surpass—the severity of the 2007-09 slump,” according to the Wall Street Journal

Much could eventually hinge on how long “social distancing” is kept in place. A couple of weeks will not be structurally damaging. But months of such policies will cause significant economic distress, high unemployment and many smaller business bankruptcies. 

A study by the United Nations Conference on Trade and Development looking at the impact of the 2008 great recession found that global gross domestic product growth took about four years to return to 2007 levels. 


If the aftermath of the Covid-19 pandemic has economic effects similar to the sharp global recession of 2008, it might well take seven to eight years for jobs, gross domestic product or household net worth to return to 2007 levels. 

Jobs did not recover to the 2007 level until seven years later, in 2014. GDP per person did not recover to 2007 levels until 2013. Household net worth took about eight years to recover to 2007 levels. 


Looking only at gross domestic product, the 2008 recession caused a dip in gross domestic product that recovered to 2007 levels after two years. 



U.S. unemployment did not return to 2007 levels for a decade. 


“The Great Recession created an unusually large and long-lasting gap between actual and potential GDP,” says the Congressional Budget Office. The gap did not close until 2017, a decade later, according to CBO’s August 2018 Economic and Budget Outlook.



Nobody yet can predict whether long-lasting changes in business and consumer behavior will be permanent after the Covid pandemic passes. Supply chains already were changing, in advance of the pandemic, for example, so that trend virtually certainly will remain intact. 

For suppliers in the connectivity business, some speculate there could be longer-term moves by businesses in the direction of remote work that are permanent. It might be easy to predict that more personal and business activities will be conducted virtually, online and remotely, for example. That might be mildly helpful for connectivity providers, though the trend has been in place for many decades. 

Related trends such as use of videoconferencing, telemedicine and cocooning might arguably also remain bigger changes that have connectivity provider implications. More work-from-home might get a boost as well. 

Some believe there will be a permanent reduction in business travel, for example. 

But consumer behavior in a crisis often does not actually become permanent. How many of us actually believe the present shift to buying of “essentials” remains intact after the crisis passes? Who doubts that consumption of “non-essential” or aspirational products will not return to past levels? 


All that happens against a productivity and economic growth background that might explain behavior more than episodic recessions or expansions, though. The U.S. Bureau of Labor Statistics, in 2014, predicted that “the 2007–2009 recession and other factors will have an adverse effect on the U.S. economic outlook through 2022. 

One poll of consumer spending suggests spending levels remained depressed after the 2008 recession for at least seven years, never reaching pre-recession levels during that period. 

In other words, the impact on growth, jobs and spending from 2008 would last 13 years. 

“The aging of the population, lack of business investment during the recession, and high long-term unemployment are expected to place constraints on potential GDP growth, BLS said in 2014. “As such, U.S. GDP is not expected to attain the higher growth rates that are typically seen following recessions.”

A “new normal” of slower growth was predicted. Those predictions turned out to be wrong on the low side. 

That thinking is predicated on changes in consumer behavior some say remained permanently altered in the wake of the great recession of 2008. Certainly consumer spending appeared more restrained than many expected six years after the recession. 

Some argue that changed consumer buying preferences in the immediate wake of the 2008 global recession would become more-established behavior longer term. One such trend was consumer willingness to experiment with lower-priced brands. 

Still, it is hard to separate other secular trends from the specific changes wrought by the disruption. Customers in 2020 are more likely to buy organic products or  fair-trade goods, for example. But those trends were in place even before the 2008 global recession, and tends to run counter to the “lower-priced goods” trend some say that recession introduced. 

But a decade after 2008, some would note that a search for value remains intact. What is not clear is “why?” A counter argument could be made that the general experience with online shopping has accustomed consumers to lower prices, generally, and that this behavior is not a lasting result of the 2008 recession.

Also, millennials facing job market toughness might have developed receptiveness for value for income-related reasons. 

Some changes might have happened with savings rates, though that also might be explained, in part, by millennial job issues. 

The point is that it is very hazardous to predict how consumer or business behavior might change over a 10-year period, based on reaction to a recession or biological shock. We could well see a several-year period where behavior seemingly has altered, only to see the effects disappear after that. 

It seems safe to say that larger trends such as the application of cloud computing, artificial intelligence, internet of things and edge computing will continue. Some might call that “digital transformation.” 

What remains to be seen is whether shifts to remote work, work from home and some other trends become permanent features of business behavior at much-higher levels than was the base case before the Covid pandemic. 

History suggests we might not know for a half decade or so.

Monday, November 7, 2011

What Would Double-Dip Recession Do To Telecom?

It isn’t yet clear whether Europe, or other regions, will enter a double dip recession in 2012 or not. Analysts at Gartner already are predicting that the next recession in enterprise information technology spending has virtually begun, and that spending will slow through 2015.

The impact of the Great Recession beginning in 2008 is easy enough to describe. According to TeleGeography Research, revenue growth 
slipped from about seven percent annually to one percent in 2009, returning to about three percent globally in 2011.

The Economic Cycle Research Institute says the U.S. economy is either just beginning to dip, or is about to do so, says Lakshman Achuthan, the managing director of ECRI. "The critical news is there's no turning back,” he says. “We are going to have a new recession." U.S. Double Dip?

If that turns out to be correct, service providers probably will encounter revenue pressure much as was seen in the last recession. The issue will not be so much that “lines” or “accounts” are abandoned, as that users will consume less. So “line loss” will not be the issue so much as “average revenue per user.”

Some believe that, even in the absence of a new recession, there will be no quick post-recession recovery for Western European telecom revenue, according to new forecasts published by Analysys Mason. End-user spend was down by 4.4 percent in 2009, and will decline at a compound annual growth rate (CAGR) of –1.8 percent until 2012, the firm predicted.  No quick return to growth

What was expected in the last recession was a greater degree of product substitution. "The more flexible cost structure of mobile networks means that mobile operators are winning more of the lower usage end of the fixed services customer base," the International Telecommunications Union says. "This has happened in voice, and 2008 has demonstrated that mobile broadband can substitute for light-usage DSL." Recession impact on telecom

Also, more consumers are likely to opt for prepaid and flat-rate packages for telecom services to try and control their spending.


Point Topic does not believe any recession would affect “line growth.” The total number of broadband lines in these countries will grow from 393 million by the end of 2008 to 635 million by 2013.

Adding in estimates for the remaining smaller countries suggests that the world will add a further 48 million broadband lines to reach 683 million in total over the period. Point Topic forecast

This represents a 10.8 percent per year compound growth rate, well down from 27.7 percent per year in the 2004 to 2008 period, but still substantial, Point Topic argues.

One major reason for the slowdown in growth is that most of the richer countries are approaching saturation with broadband; new customers are becoming harder to find and sign up. At the same time poorer countries such as China and India have gone through the initial phase of rapid growth and are now growing steadily rather than exponentially.

Whatever else one might say, the number of accounts or lines in service seemed relatively unfazed by the recent “Great Recession.”  Fixed voice subscriptions will continue a downward trend, as users increasingly switch to mobile and VoIP substitutions. The recession impact is likely to be on average revenue per user, not abandonment of service, as such. Line growth

For its part, Gartner believes enterprise IT spending in Europe, the Middle East and Africa (EMEA), which will be €604 billion in 2011, a 1.4 percent decline from 2010, will face headwinds through 2015.

Euro-based enterprise IT spending in the region will grow by 2.3 percent in 2012. Western Europe will continue to slow EMEA growth through 2015, according to Peter Sondergaard, senior vice president and global head of Research at Gartner. IT to Hit Double Dip

“The second recession is about to hit and CIOs must decide which way to turn,” said Mr. Sondergaard. “The continued global economic uncertainty and the eurozone crisis will impact your IT budget in 2012, and your business will face difficult budgetary questions,” says Sondergaard.

Sharply lower economic growth in the mature economies of Western Europe is the reason for the tight IT budgets.  Austerity measures brought in to deal with the sovereign debt crisis will curtail government spending on IT in particular and hinder economic growth, which will result in lower demand for IT products and services from businesses.

Western Europe, which accounts for 80 percent of EMEA enterprise IT spending, will see enterprise IT spending in euros decline by 1.8 percent in 2011 and grow by only 1.5 percent in 2012, Gartner predicts.

Government (including education) IT spending will account for the largest share of Western Europe enterprise IT spending in 2011, at 20 percent of the total. Gartner predicts that this sector will decline by 4.8 percent in 2011 and 1.7 percent in 2012, and that it will not recover to the level seen in 2010 until 2015.

Friday, March 27, 2020

Consumer Spending on Connectivity Might Surprise You, Even in Recession

It is easy enough to predict that consumer, smaller business and enterprise spending will fall if the world falls into recession in 2020. That would be in line with findings that consumption and consumer spending fell virtually across the board in the Great Recession.  

But that does not directly translate into consumer, small business and enterprise spending on communication services and products. 

Telecom service provider revenues did not change much in the wake of the Great Recession of 2008. In fact, according to some studies, U.S. consumer spending on communications actually grew, overall, in the wake of the Great Recession, for example. 

Some surveys found that device purchases slowed during the Great Recession. But some surveys also found consumers willing to make other tradeoffs to keep their broadband, mobile and video subscription services. There was, in other words,  less willingness to cut high speed access than other services, for example.

In fact, some surveys found consumers would rather abandon their mobile service than give up fixed high speed access. Consumers have indicated they would give up other products as well to keep their broadband access.

If they had to give up one service  (video entertainment, mobile, broadband), U.K. consumers would ditch video (49 percent) or mobile (30 percent) before their fixed network broadband connection (two percent), a survey of  more than 10,000 U.K. consumers found, for example.

The point is that high speed access arguably is highly resilient in a recession, and arguably the most-valued service, perhaps even be more valued than mobility. But mobility likely would rank as among the next most important service.

By some studies, consumer spending on mobile devices increased during the Great Recession of 2008 and spending also increased for communication services. That pattern hasn’t changed.

It does not seem that there was much recession impact on subscription video entertainment spending, though some consumers might have dropped a premium channel in favor of expanded basic service.

So despite fears, it is likely that overall revenue will not change that much in the wake of the expected Covid-19 recessions, either. 

One reason is that consumer spending on communications is relatively fixed. As data gathered by the Organization for Economic Cooperation and Development suggest, developed nation spending by consumers was remarkably consistent in the few years after the 2008 recession. 

Still, operators will be prudent, given growing expectations that the global economy now appears headed for negative growth in 2020 because of the Covid-19 pandemic, according to the Economist Intelligence Unit. 

Three years after the 2008 Great Recession, many still were noting reduced revenue growth in some regions. The caveat is that those areas arguably also had secular revenue issues that might have been masked by the effects of the Great Recession. It is likely that revenue trends were shaped by both consumer and enterprise spending, arguably benign in the former case, but more pronounced in the enterprise customer segment. 

Growth Forecasts, G20 countries in 2020
Real GDP growth
(% in 2020)
Real GDP growth
(% in 2020)
Previous forecast
(before outbreak)
Argentina
-6.7
-2
Australia
-0.4
2
Brazil
-5.5
2.4
Canada
-1.3
1.8
China
1
5.9
France
-5
1
Germany
-6.8
0.9
India (2020/21 fiscal year)
2.1
6
Indonesia
1
5.1
Italy
-7
0.4
Japan
-1.5
0.4
South Korea
-1.8
2.2
Mexico
-5.4
1.1
Russia
-2
1.6
Saudi Arabia
-5
1
South Africa
-3
1.4
Turkey
-3
3.8
UK
-5
1.1
US
-2.8
1.7
Global (market exchange rates)
-2.2
2.3

The last two big recessions of note happened in 2001 and 2008. The issue now is whether the recession caused by economic shutdown for health reasons because of Covid-19 is going to be better, the same or worse than the great recession of 2008 or the collapse of the internet bubble in 2001, for example. 

The “same as” or “worse than” scenarios would be multi-year, perhaps half-decade long events. 

In a 2014 analysis, EuroMonitor noted that “the speed of the recovery from the 2008 global financial crisis has been unusually slow,” compared to recoveries from previous recessions. In the U.S. market, for example, gross domestic product per person did not recover to 2007 levels until 2012, four years after the 2008 great recession. 

GDP Per Working Age Person in Advanced Economies since 2007



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