The 2007 - 2009 Economic Crisis
Updated: Jul 22, 2020
The economic overthrow triggered by the eruption of COVID-19 revived memories of the 2007-09 global financial crisis (GFC): recession gossip, bloodbath on global capital markets, governments and central banks loosening their pockets. The pandemic, which has taken thousands of lives across oceans, has virtually brought the entire economy to a standstill, with millions of people bottled up and global supply chains plunged into disarray as a result of the outbreak wreaking the biggest havoc in China — the world's factory.
While some are now contrasting the new downturn with the 2007-09 recession, the majority of economists do not expect it to be as grim and predict that the global economy will rebound rapidly in the second half of the year, given that the epidemic is gloomy by then. Yet the novel coronavirus has dealt unprecedented blows to the aviation industry and to the oil markets.
Essentially, the global crisis is evidently difficult to prevent and will strike, without discernment, just like coronavirus, all over the world: developed nations, emerging markets, weak or developing countries. The fields most impacted will be tourism, air transport, the oil industry and the car sector, according to a broad study prepared by the London Business School. The food industry and household appliances development will be the industries most impacted by the crisis. The report, written in English, has 97 pages and can be found here: https://bit.ly/2R6LPe6
But before making premonitions, it would be good to keep an eye on the past financial situation. This will help us to understand more easily what kind of risks different industries face and what we can learn from the past experiences of those who have already been through such situations.
More than 8.2 million jobs have been lost since the recession formally began in December 2007. Male-dominated sectors such as building and engineering have been especially hard hit, causing some to term this a 'mancession.' Nearly two million construction jobs have vanished since December 2007, according to data from the Bureau of Labor Statistics.
More than 2.1 million jobs have been lost in manufacturing. Those industries are dominated by men. Those jobs were lost in part because of the collapse of the housing market. With prices nationwide down nearly a third, foreclosures on the rise and a ‘shadow inventory’ of homes secured by defaulted mortgages just waiting to be foreclosed on and unleashed on the market, there’s little need for further construction.
Using data provided by the financial information firm Sageworks, we will see which industries took the worst beating:
1. Building material and supplies dealers: Sales % Change from 2009 to 2010: -3.28%
If fewer construction projects are in progress, contractors will buy less materials. That has made the construction materials and equipment distributor industry the hardest hit in the crisis.
2. Home furnishing stores: Sales % Change from 2009 to 2010: -3.27%
The slowdown in building activities has influenced this sector. Because fewer people were building houses during the crisis, stores selling domestic decorations and products also saw a drop in revenue. It shows that industries — even though they are not in the same supply chain — do not work in a bubble. Construction slowdown has affected other sectors.
3. Lumber and other construction materials wholesalers: Sales % Change from 2009 to 2010: -3.07%
Such as the cement and concrete production industries, this sector is also dependent on construction projects, and when they came to a halt in 2009, the industries got hit hard. Apparently, there was a reduced need for lumber and related materials when construction was down.
4. Other motor vehicle dealers: Sales % Change from 2009 to 2010: -2.59%
As for most big transactions, thrifty buyers just weren't able to waste their money on luxury products like these, because the economic outlook was still unclear.
5. Cement and concrete product manufacturing: Sales % Change from 2009 to 2010: -1.67%
Construction was one of the hardest-hit industries during the crisis. The termination of new projects and the slowing down of existing ones also created a domino effect that impacts other sectors that rely on them.
6. Newspaper, periodical, book and directory publishers: Sales % Change from 2009 to 2010: -1.57%
The drop in revenue amongst newspaper, radio, book and directory publishers cannot adequately be justified by the fact that, given the rise in technology and e-readers, this market has improved since the recession.
7. Furniture stores: Sales % Change from 2009 to 2010: -0.54%
Due to the economic crisis, consumers were hanging on to big transactions. Furniture typically falls into this category, and home furniture stores have struggled as a result. The decline in sales of furniture stores, such as home furnishing shops, may likely be due to the decreased number of new buildings during the recession.
8. Printing and related support activities: Sales % Change from 2009 to 2010: -0.49%
Printing stores suffered a decrease in revenue during the recession, especially in 2009. It is likely that companies were attempting to reduce costs including printing because they were pressured to cut costs.
9. Office supplies, stationery and gift stores: Sales % Change from 2009 to 2010: -0.40%
Retailers struck through the slump when the belts squeezed and the pockets closed. It involves stores offering modestly priced items such as stationery, school supplies and office supplies. Office materials, stationery and gift shops saw their overall annual sales fall significantly in 2009 and 2010.
10. Travel accommodation: Sales % Change from 2009 to 2010: -0.23%
When there is less money to go through, one of the first casualties for customers is the traveling program. That means that hotels and motels will see a sharp decline in the number of tourists booking in, and that's precisely what happened at the lowest point of the recession.
During the 2008 crisis, it was up in the air that companies should have kept the bleak economic climate unaffected. It became evident that smart behemoths like Google or Apple would recover from the recession with their prestige and income left, but for others, the recession felt like it might have been the end.
Yet many of the businesses that had the tables set against them survived and even thrived through the crisis. For certain situations, it was due to the product or service they were selling, tailored customer support, appreciation for their name, or pure chance. Businesses and individuals on a regular basis endure financial crises in a number of ways.
Here are some businesses who have managed to survive the great recession, why, and how they might help us survive during the coronavirus outbreak:
· Wells Fargo
Wells Fargo's corporate strategy centered on providing financial goods in a branch environment and building a dynamic banking network that not only lent to real estate but also to small enterprises, electricity and agriculture, and others seeking to pay back car loans. Whereas other banks were trying to expand their branch number in whatever direction they could, Wells Fargo kept it to a minimum and just took over Wachovia, which increased its East Coast branches and allowed Wells Fargo to prosper, enabling it to stay competitive both today and in the future.
When you hear about households cutting spending to save money in times of economic hardship, you'd expect cardboard construction toys to be at the top of the list of expendable luxuries. Yet, when other businesses were struggling to thrive, Lego posted a sales increase of more than 63%, hitting an all-time peak in profitability. Why? Why? There are a few explanations for this, but the most important was the growth of the world economy. When the Americans were suffering the brunt of the crisis, Lego was spreading to Asia and making concerted attempts to create revenues in Europe.
Retail firms were hit hard by the recession, but Amazon remained solid, with revenue actually rising by almost 25%. Why? Amazon launched a range of new product launches, including the Kindle 2, which helped improve sales during the holiday shopping season. Nevertheless, Amazon has always made sustainability a secondary goal in terms of customer satisfaction and pricing dominance; it has been able to sell more goods at cheaper costs, making it a preferred option for shoppers looking to save more money.
Domino's pizza was not America's preferred pizza chain when the recession struck, but the restaurant company wasn't willing to give in to its rivals. In 2009, Domino announced a major improvement in its signature pizza recipe, investing millions of dollars on testing and a new ad strategy to increase awareness. Amid worries of a "Fresh Coke "- style disaster, the fresh pizza was a massive hit, pushing up both revenue and profits for the brand.
Currently the world's entertainment giant, Netflix had a modest history as a DVD-by-mail company in the mid-2000s. As the recession struck, a number of entertainment-related businesses struggled to survive, but Netflix found its base and skyrocketed in subscribers. In addition, by the end of 2009, Netflix had drawn three million more subscribers, and its stock price had increased by 57%. Part of the reason for Netflix's timely popularity was its desire to serve as an alternative to cable and satellite television providers, which was a much more significant monthly cost. Consumers opted to spend a fraction of the amount for equivalent content experience, and Netflix eventually prevailed.
The crash triggered a drop for customers who chose to purchase products, shop or pursue new things. Right in the midst of it (November 2008) came Groupon, a day-to-day website that offered the operation with large-scale non-essential services. The firm, which sends out regular email coupons to local companies, has quickly expanded to over 35 countries and 300 markets in its first two years, earning an annual profit of $500 million. Groupon's task was to provide customers with access to all the non-essential goods they needed in a difficult time and to make a profit. Nonetheless, with the crisis going on and the acquisition from Google, Groupon is one of the crisis winners who has seen better days.
Even in a crisis, the problem isn't how quickly you can plan BUT how fast should you pivot? The financial crisis emerged not because there was no planning, but because the executive departments were not able to handle the economic disruption. There was no-one. Leaders must develop their team's capacity to be sensitive and react to potential crises; they need to organize their staff with strength and agility.
Now, 12 years later after the Lehman Brothers empire crashed, world leaders have rebounded, rebuilt, and, in many ways, made substantial changes toward a better future. If today’s businesses remember and focus on the lessons learnt from the 2008 recession, they should be well positioned to succeed in thrilling and unpredictable times ahead.
Although there may be a common consensus that we are better now than we were a decade ago, it's impossible to truly say before we face the next crisis. We know this: it's not going to feel like the last one – they're never going to. That’s the thing about crises and so-called ‘black swans. Cracks begin to emerge, and before everyone is able to take a close look at what is causing them, they transform into huge tectonic changes that change the world order.