A deeper look into the recession and recovery

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For many remodelers, it has been some time since they have thought about challenges from the standpoint of business growth. Yet, there are remodelers in different regions of the country that are already in economic recovery. Although for most their sales are not what they were a few years ago, their volume is substantially better compared to a year ago.

As recovery occurs sporadically across our country, many are experiencing a roller coaster ride of ups and downs. The fortunate are having a more stable and consistent recovery, while others are still waiting to see any signs. No matter which group you are part of, we all need to capitalize on the lessons learned the last couple of years.

The main lesson is to truly maximize our resources by doing more with less and eliminating waste. Doing more with less might mean utilizing trade partners and more fully leveraging lead carpenters. Eliminating waste might include preventing purchases of things that are nice, but not necessary — eliminating expenses that are done just because "that's the way we've always done it;" and avoiding wasteful spending out of ego or excess, rather than for a strategic purpose.

As the recession ends and we start to live through a recovery period, we must also start preparing for the next recession, which we hope will be much less severe. The best way to prepare for the next recession is during the recovery period when life is good again. This is the time to pay off debts (lines of credit, trucks and equipment, to name a few) and build up your savings. We must apply more consistent and prudent business practices if we plan on experiencing strong, profitable and sustainable growth going forward. The days of extreme excess that we recently lived through are gone.

Here is some history that I think you might find beneficial as you watch for signs of recovery and plan your business accordingly:

In the 25 years between December 1982 and December 2007, our recession periods lasted an average of only eight months and our recovery periods lasted approximately eight years on average. For the 34 years between November 1948 and November 1982, our recession periods averaged eleven months and our recovery periods lasted approximately four years — half of what we experienced with our most recent recovery periods.

Why did we experience recovery periods lasting twice as long from 1982 – 2007 as they did from 1948 – 1982? From my analysis in studying the history and data, it is pretty clear that the massive extension of credit is the main cause. It didn't start with housing, as we have most recently experienced; rather it first started with personal and business credit cards becoming easily available and widely accepted for almost any kind of purchase. This created some unusual one-time growth, which was unsustainable long-term. In the early '90s, we started to see home loans available for up to 90 percent of the home's value, ultimately reaching as high as 120 percent. Lastly, credit requirements to purchase new homes were eased in the late '90s. This kept the unsustainable cycle moving forward.

Armed with these facts, I don't believe we are going to see the back to back unusually long recovery period of the 25 years ending in December 2007. Thank God there is good news. With the credit craze hopefully under control, we should start to experience sustainable growth. Long-term, we should avoid another extreme recession like this one, once it has fully ended.

Prepare for growth and recovery. As you do, be very prudent and don't forget the lessons learned.