E-BUSINESS SPECIAL REPORT
Whatever Happened to the Recovery?

For months, it has seemed as if an economic rebound might be just around the corner, or at least around the next fiscal quarter, thanks to cautious optimism on the part of some analysts and market observers. According to these pundits, we should have been basking in the dawn of recovery by now, aglow with relief that the downturn was over at last.

Yet, as the United States prepares for an extensive occupation of Iraq, the government reports a deficit, and business spending is stalled indefinitely, the chances of imminent recovery seem slim. There are some glimmers of hope on the horizon, but they are far in the distance, and it will take time to reach them. Why are we still waiting for the upturn?

Goes Around, Comes Around

It may feel as if this period of malaise is unique, but it is part of a normal business cycle, according to Ari Axelrod, corporate development manager at Boston Consulting Group. He told the E-Commerce Times that the current situation is no different from other times in history.

"We're so used to rapid growth and excellent economic conditions that when there's a slowdown, it's viewed as an aberration," he said. "If you take a long-term view, you'll see that this is the same as other periods."

Axelrod noted that although previously unforeseen conditions, such as war with Iraq, have affected consumer confidence and, in turn, the timing of any economic recovery, such fluctuations should be considered small waves in the overall tide of events.

"The business cycle is the big wave, the one that is the most important," he said. "If you look at how business cycles work, it shows that the economy is not as bad as some people might think."

Parts of the Whole

To predict when a recovery may occur, various segments of the overall economy must be examined for areas of strength and weakness. Unfortunately, it seems there are more flabby muscles than buff biceps at present.

As Forrester analyst Andrew Bartels told the E-Commerce Times, there are four legs of the economy: consumer spending, business investment, government spending and foreign trade. At this point in time, only one and a half of those legs are steady.

"We've got the consumer segment and a bit of the government," he said. "We won't get a really strong recovery until more of those legs are kicking. Right now, it looks like it might be later this year or maybe next year.

"With business, there's still the overhang of investment done in the bubble period," Bartels explained. "So, the prospect for investment picking up doesn't look encouraging." He also noted that the trade sector is suffering from a decline in the dollar and poor growth rates outside of the United States, especially in Asia and Europe.

Stormy Weather

As the economy trudges along at a fairly stagnant level, it is possible that the amount of sunny talk from pundits will begin to decline. In fact, some analysts already have begun to release reports that rain on optimists' parades.

For example, Gartner (NYSE: IT) analyst Roger Fulton recently wrote a report on IT spending that outlined a dire "worst-case" scenario, warning that loss of confidence in the value of technology will cause IT spending to follow a recovery, not lead it.

"We expect it to be a while before any improvement," he told the E-Commerce Times. "You have to be pragmatic when looking at the chance of recovery, and speaking pragmatically, it's going to take a while."

Hope Springs Eternal?

But if the economy does not deserve pure optimism right now, it should not inspire unmitigated pessimism, either. Analysts say there are areas in which some sort of recovery can be sparked.

For example, Bartels noted that despite the U.S. government's fiscal difficulties, there have been promises of increased federal spending, which could boost foreign trade. Also, a tax cut could have a stimulating effect on consumer spending.

In terms of idle business spending, there is a possibility that when other sectors pick up, investments will do so as well, finally rebounding from the damage sustained in the bubble period.

There is even a possibility that a boom will come out of the blue, spurred by a hardworking technologist somewhere. "If there [were] a technology breakthrough," Axelrod said, "it would be terrific."

In the end, the impulse to remain upbeat is strong, and that is not necessarily a flaw. "I think it's nice to be optimistic, and something will be happening in the future," Axelrod added. "It just won't happen as soon as some people may have thought."