What Shape is the Economic Recovery?

CFO.com had a recent article, which polled some of our nation’s most distinguished economists. They asked each one what letter or shape best reflects the outlook for economic recovery, from the”V” shape that described the fast recovery from the 1973–74 recession through to the dreaded “W” — twin recessions or “double dip” that keep the economy on the ropes for years.

Guess what? 8 different economists gave 8 very different answers. My favorite response was from James Lothan, Finance Professor at Fordham University:

“When I talk to other economists, we can all come up with plausible scenarios that essentially cover the ballpark, with more letters describing the shape of the recovery than are in the alphabet. None of us, however, is willing to attach a whole lot of probability to any of them … There is just too much uncertainty, most of it regarding government policy.”

So what should we do if even the smartest economists can’t predict the future?

As the mantra goes, plan for the worst and hope for the best. In fact, you should really plan for the worst, plan for the best and plan for somewhere in between. You need to set out a range of scenarios from best case through to worst case and start working on an action plan for each possible outcome. That goes for more than just budget and capital planning. It applies to every aspect of your business.

What if the economy and sales pick up faster than expected? Are you ready to exploit the growth opportunity and what’s your action plan if that happens? What if we have a double-dip and sales pick-up then start declining again?

Let’s make a pact today to do a better job of writing down, or at the very least thinking through plan A, plan B right through to plan Z.

It will help us not only more effectively and promptly respond to change, but also get us geared up for action, rather than panic when the time comes.