Wednesday, February 04, 2009

Recession in plain simple terms..

In these times of recession, the sector which is going to get hit badly is manufacturing, especially those focussed on exports. As consumption in Europe and US have reduced, exports have reduced, forcing these companies to reduce production or even close shop.

From the perspective of a service provider, it is just the fear of layoffs which makes him jittery of the future. The news of retrenchment, factory closure etc generates enough fear. A service provider like educator, banker, accountant, software programmer will be able to survive, but we can expect a shakeout to happen for the good where salaries will be pegged to realistic levels. With stock markets and real estate down, people who were living on speculation will have a tough time. We looked at recession from the perspective of a food service provider who will never go out of business as long as people are existing.

Another way of looking at it is in the perspective of a consumer..

I am a customer.. I am reading everyday about the job losses, salary cuts, companies winding up etc.. Naturally i am concerned and worried whether I am next in the line.

I tell my kids and family that times are not that easy and we have to tighten our belts expecting bad times. Trying to save some for the hard times. I reduce my visits to the hotel, purchase of dress and birthday gifts... Unless the consumer spends Industry does not have demand. Hotels do not have business .. taxis do not have passengers ..

Like me there are millions of families who are tightening their belts and postponing major purchase decisions for later times. This results in consumption dropping drastically forcing industries to reduce production, close facilities and lay off workers. The news of laying off further accentuates the fear and belt tightening process, entering into a vicious circle.

Service sector will somehow survive the downturn and their employees will be relatively safe , with very minimal adjustments needed. But manufacturing and exports will be badly hit, the employees there being retrenched or laid off..


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