Fourteen months into this recession, the question we’re all looking for an answer to is this: Just when is this mess going to end?
When it comes to the economy, the crystal ball business is so “iffy” it makes weather forecasters look like Nostradamus. Nonetheless, for an answer, I turned to veteran economist Tony Villamil, who recently addressed a packed audience at the International Marina and Boatyard Conference (see Page 14). I spoke with Villamil by phone from his office at St. Thomas University in Miami, where he is the dean of the business school. The interview ranged from the reasons behind the freefall of the economy to solutions for the marine industry.
In terms of timing, Villamil says improvement in the overall economy should take place in the latter part of this year or early 2010. The marine industry, he notes, “will probably lag a little bit,” given how tied it is to discretionary spending. Our recovery won’t begin in earnest until mid- to late 2010, although we’ll see some improvement before then, he predicts.
“Recreation will come back,” says Villamil, who was undersecretary of commerce for economic affairs in the George H.W. Bush administration and has served as economic adviser to two Florida governors. “We’re not looking at three to four years of declining sales. The fundamentals of the marine industry are sound.”
That’s a line that bears repeating: The fundamentals are sound.
Before dealer showrooms are once more humming with activity, consumer confidence, which earlier this year hit historic lows, first has to be restored. How? For starters, people need to feel comfortable they are not going to lose their jobs, says Villamil, a former chief economist for the Department of Commerce.
“A few positive reports that we’ve reached bottom, especially in regards to employment” will go a long way, Villamil says. Along with a stabilization of the job picture, the economist says credit needs to begin flowing more freely. “When people see a light at the end of the tunnel,” he says, “they will begin to spend.”
That’s going to take some time, given the shellacking that consumers have taken in their pocketbooks with plummeting home and stock prices. “Suddenly, boom, in a short period of time, they’re feeling very poor, on average,” Villamil says. “They’ve been shell-shocked. We have to repair the balance sheet of the consumer. That will take awhile.”
This recession will not be followed by a quick V-shaped recovery, he notes. “I call it more of a ‘U’ with a longer base than usual.” And while that’s far better than the prolonged L-shaped doldrums the Japanese economy battled for nearly a decade, it means there’s still plenty of tough sledding in front of us. “Six to nine more months,” Villamil cautions.
“This recession is different,” Villamil says. “It’s deep and broadly based, and it started with a breakdown of the financial system.” Mistakes in monetary policy created a highly leveraged economy.
“We saw the party get too loud,” Villamil says, “before the punch bowl was taken away by economic forces.”
Psychology plays a role in economics. The steady barrage of bad economic news creates what Villamil calls “input overload.”
“Unless you are an expert in this area, it can be overwhelming,” he says. “It reinforces fear.” And, Villamil notes, “Fear is not rational. People begin to see things that are not there.”
The economic expert talked about several bright spots, including low fuel prices and that large demographic bubble known as the baby boomers. “They may retire later, but baby boomers will have leisure time on their hands,” Villamil says. And while they are not feeling particularly bullish at this moment about their net worth, they have, as a group, been saving for a long period of time, he notes.
Villamil offers this advice for volatile times:
• Remember one of the mantras of this recession: Cash is king. “Keep your powder dry,” Villamil says.
• Businesses need to remain nimble. “Adaptable and flexible,” he says.
• With regard to inventory, stay “lean and mean.”
• Emphasize core competencies.
• Continue to advertise.
• Work closely with clients, partners and vendors. They’ll remember that when times get better. “Don’t be a bully,” Villamil says.
• Be open and transparent with employees about the state of your business. Consider flex-time and part-time strategies to keep as much of your work force as possible; you’ll need them when things improve, he says.
Overall, Villamil has confidence in this country’s economy. “We’re still a highly innovative and flexible economy,” Villamil says.
To the marine industry, he says, “Know that the fundamentals are with you. We’ll do well once the U.S. economy starts to expand.”
This article originally appeared in the March 2009 issue.