Between 1854 and 1982, the US economy was in recession for 35% of the time, according to Deutsche Bank research.
But between November 1982 and December 2007, as the chart shows, it was only in recession for 5% of the time, just 16 months in 25 years.
Something very unusual clearly happened during this period. This will be the subject of Chapter 2 of the blog's new eBook, 'Boom, Gloom and the New Normal', to be published at the end of the month.
The blog's view is that this Golden Age was due to the arrival of the Western BabyBoomers (those born between 1946-70). They are the richest and wealthiest generation that the world has ever seen:
• Between 1980 - 2005, 78 million Boomers entered the 25 - 54 age group
• This was a 25% rise from 311m to 389m
25 - 54 is the age when people typically marry, settle down and have children. It is therefore the period of peak demand for housing, autos and electronics. In turn, these drive chemical demand. Each new US home, for example, is worth $16k of chemical sales, and each new auto $2984, according to American Chemistry Council research.
Thus between 1980 - 2005, we got used to the idea of 'pent-up demand'. Recessions almost became opportunities, not problems. Higher interest rates only cooled demand temporarily, and it would bounce back at higher levels when rates were reduced. Companies learnt to set 'stretch targets', to ensure their managers' expectations weren't set too low.
But now the Golden Age has ended. The number of 25-54 year olds peaked at 392m in 2010. Instead, the 55+ age group is becoming the key growth area. Older people typically save more and spend less. And the Boomers have to save more, as they have an extra 10 years life expectancy compared to their parents:
• The oldest Boomer became 55 in 2001
• Since then, their numbers have grown 22%, from 223m to 272m
• By 2020, these will have grown 45%, to 324m
So there will be no more 'pent-up demand'. In fact, as we have seen since the crisis began, even 0% interest rates and $trns of stimulus packages have failed to revive housing and auto markets. Instead, we will probably return to the much shorter business cycles seen before 1982.
Deutsche Bank's work suggests that we should expect to see 3 recessions over the next 10 years, and certainly not a new supercycle or Golden Age. Their 'best case scenario' suggests start-dates in August 2012, April 2017 and December 2021. Their 'worst case scenario' is that recessions start in July 2011, March 2015 and November 2018.
This need not be a disaster for companies, if they recognise what is happening and prepare for it. As my fellow-blogger and co-author, John Richardson, noted this week:
"A few bad quarters should not mean the end of the world for those used to handling downturns. But a valid question to ask, after such an extended upswing, is: "Who in your company has been around long enough to have the experience to deal with a downturn?"