Getting the bounce back into the economy

In our last quarterly report, we emphasised the psychology of the recession, and the importance of changing our outlook towards the economy. At that point it was consumers’ beliefs that were of greatest concern as they scaled back spending; the commercial sector still looked robust.

Over the past quarter, the mood has changed, and we seem to be intoxicated by the heady scent of recovery. But the truth is that very little has changed yet, either for the better or for the worse. The priority now has to be to think through where consumers and businesses will be in 12 to 18 months time. The big hope for the economy has to be that consumer spending will prove to be resilient, and that businesses are still able to grow off the back of that resilience.

In this quarter, we try and paint a picture of consumers and businesses in the future to answer that question, and the further question of how businesses can succeed in this new world. We find the following.

Firstly, the place to focus may not be the epicentre of this recession: London and the South East. Unsurprisingly, employees in financial services have seen a sizeable drop in disposable income, and in the equity in their homes. However, as the aftershocks have been felt in manufacturing (which with construction is the sector now facing the greatest number of business bankruptcies), the impact on the North and traditional manufacturing centres has been severe. And our data would suggest that the ability of these areas to bounce back is less than in the South. So, policies and investment needs to focus on these traditional heartlands.

In particular, we have concerns about mid-size employers; those who employ between 10 and 100. These businesses have been going to the wall at an increasing rate. The loss of these, from where we would expect to see new growth and innovation in the future can only be of concern.

Secondly, consumers are changing and businesses will need to adapt with that change. Across all segments, the recession is forcing a rethink of spending patterns. Interestingly, it isn’t all about cheap. It is about value. And value means more than ever it did before. It means green, it means great service, it means trusted by other consumers. And trusted by consumers doesn’t mean the company tells you that, it means other consumers do – and they do it directly. Potentially a seismic shift in consumer needs, there is a huge opportunity for market share gain.

So what can we see out there? Risks, to businesses, risks to key economic heartlands of the country – but a prize that nimble, adaptive companies can go after. Supporting those businesses, and winning that prize offers the potential to maintain consumer spending, the potential to bounce back.