The new normalcy

Day by day, it’s becoming dreadfully apparent that this is not your run-of-the-mill downturn in the business cycle, where business contracts for a couple of quarters and then begins expanding once again. This downturn represents a fundamental restructuring of many industries, among them manufacturing, retail and financial services. From the NYT:

“These jobs aren’t coming back,” said John E. Silvia, chief economist at Wachovia in Charlotte. “A lot of production either isn’t going to happen at all, or it’s going to happen somewhere other than the United States. There are going to be fewer stores, fewer factories, fewer financial services operations. Firms are making strategic decisions that they don’t want to be in their businesses.” For American policy makers, such a reality poses fundamental challenges to the traditional response to hard times. For decades, the government has reacted to economic downturns by handing out temporary unemployment insurance checks, relying upon the resumption of economic growth to deliver needed jobs. This time, argues Mr. Silvia, the government needs to put a much greater emphasis on retraining workers for careers in other industries.

One obvious example, I'm sorry to say, is the newspaper business. Jobs cuts at many of the nation's dailies are gone forever. Frankly, many of the nation's dailies - and the companies that operate them - are gone forever. Taking their place will likely be Web-focused companies that will reformat the way we consume news and information. I'd bet that some of them have yet to be started. It's much the same with the American auto industry, which has seen sales slump from 17 million a few years ago to the current 9 million.

“That’s a lot of workers that are not coming back,” Mr. Silvia said. “That’s a lot of steel, a lot of rubber, a lot of suppliers that are not coming back. It’s really challenging to us as a society.”

[CUT]

“The people who do what I do in the Detroit area are a dime a dozen,” said Kim Allgeyer, 46, a machine toolmaker in Westland, Mich., who was laid off in January from a company that makes manufacturing assembly lines for the Detroit automakers. Since then, he has failed to find another full-time job, subsisting on day labor and one weeklong stint for contractors. He is thinking of moving to Louisiana or Mississippi to seek work as a shipbuilder. “Who’s going to put me to work?” he asked. “Where’s the work at? It’s just a great big black hole.”

These are painful concepts to grasp, which is why conventional wisdom still has the American economy somehow trudging along for another six, 12, 18 months - you pick the time frame - before returning to the kind of normalcy we had all remembered.
But that scenario is pretty unlikely. Instead, this is shaping up to be the new normalcy, still quite formative and in many ways undiscovered.