Beware overconfidence as the recession starts to ease it's grip

The recession is over according to Newsweek.  And not only is the recession over, the magazine goes on to assert in an August issue, also the US will emerge on top.  Now following the old saying when America sneezes the world catches cold, if America perks up we should all feel the benefit.

This exuberant view may feel like rampant optimism but the article does paint a picture of an economy recovering from a “near death experience” and questions what needs to be done in order to survive the recovery.  Economist Nouriel Roubini says “Its going to feel like a recession even when it ends”.  And the prediction of American supremacy is based less on economic indicators and more on Obama’s status as the pre-eminent world leader.

There are some signs of recovery.  The “Cash for Clunkers” – the American version of scrappage : trading in old gas guzzling cars for new fuel efficient ones – has already run out of government funds of $1billion after only one week in operation owing to massive consumer response. The US stock market has rallied and in June, 7 out of the 10 economic indicators measured in the Conference Board’s Leading Economic Index report pointed upwards.

Let us steer clear of over-confidence however.  One of the 3 indicators in negative in the Index was “consumer expectations”.  In the UK consumer confidence for July, measured by Gfk NOP, has made no progress since June.  And although it is 14% up from this time last year it is still very low – minus 25%.

So, people are still uncertain and not that happy (and its not as if the weather has been doing much to cheer us up).

As business leaders face a daunting autumn, and the cycle of final planning for 2010, they are adapting to a world that they hope is at least technically post-recession, and without the over-confidence that some say characterised the lead-up to the credit crunch.  And this is a positive change.

The new reality we must get used to is one of continuing uncertainty.  As one change manager Philip Cox Hynd has written “The reality of change is that it is often messy… A bit like sailing a yacht: you have to keep updating your position with where you actually are as opposed to where you said, or thought, you should be”.

Failure to adapt is cited by writer Malcolm Gladwell as characteristic of disasterous over-confidence: “One of the things that happens to us when we become over-confident is that we start to blur the line between the kinds of things we can control and the kinds of things we can’t”.

And whilst we can usually control costs the kinds of things we can’t control include consumer confidence, the dollar and euro exchange rate, interest rates, the weather, flu pandemics etc etc.

Newsweek has one thing right for sure.  This was a new kind of recession and we need a new kind of recovery: sustained and flexible enough to allow for constant change.

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