The new normal is the “in vogue” thing to talk about. In a nutshell, it refers to a macroeconomic environment that has fundamentally changed for the next five to 10 years, where equilibrium levels will be well below what we have experienced in the past.
It is based upon a host of assumptions, but here are some of the key factors:
- Unemployment rates will hover at 3-4% above historical norms;
- Consumer spending will not increase as consumers will focus on paying down debt and adopting a new mindset that is characterized by frugality rather than free spending optimism;
- The lack of job growth will keep wages down, while unprecedented government spending will lead to a devaluation of the dollar and non-wage inflationary pressures;
- Some pundits are even arguing that we have been unable to create real wealth for quite some time and that the Internet and housing bubbles were simply illusionary.
I'm not necessarily chastising those beliefs. I tend to be more optimistic about the short term than the intermediate, given the unprecedented and unsustainable levels of spending that have been initiated. Plus, I dismiss those who are claiming that the next war will be over food, simply because I believe the next major war in the Middle East will supersede any such conflict.
The question is, how do we factor in the current macroeconomic conditions as they relate to individual management decisions? This is where I would caution against embracing a “sky is falling” mentality. I'm not arguing that one shouldn't be prudent or throw caution to the wind, but history tells us that market share is most radically affected in down times and that difficulty sows the seeds of opportunity. Tough times have a tendency to draw us toward inaction and caution, and it is during tough times that this type of complacency is ultimately punished.
Macroeconomic factors dominate broad trends, but individual entities can be quite successful in utilizing them to derive profits. A contracting feeding segment and cow-calf industry is not a positive thing for producers or allied industries as a whole, but it does not preclude growth or positive returns for individual players within those segments.
Despite the current bumps in the road, I'm casting my vote in favor of America and the American cattle industry.