Naturally, when things get bad, hope for improvement rises. Unfortunately, such hope about the future may be unwarranted — for two reasons.
Second, the increase in optimism may very well be short-lived, and it doesn’t necessarily signal that the worst is behind us. One need only look to recent history.
Back in the summer of 2008, the US economy was in the midst of the Great Recession. After almost a whole year of ongoing declines in confidence, US consumers saw light at the end of the tunnel. Their expectations about the future had finally started to improve. Soon afterward, that hope came to a crashing end: Lehman Brothers collapsed, and the shock triggered a horrific Domino effect that devastated consumer confidence.
Within a six-month period, sentiment plummeted to an all-time low. And during that time, consumers’ deep, enduring pessimism translated into real-world consequences for the economy: a more frugal, debt-averse consumer along with weak job creation and tepid wage growth. It took until early 2014 for consumers to regain — and maintain — a healthy level of confidence.
Fast forward to today: What is the moment on par with the fall of Lehman — the one that could squash consumers’ early hopes for recovery?
Avoiding a new Lehman moment will require a managed approach by governments and businesses. First, we need increased testing capacity and clear, transparent reporting so that new outbreaks can be proactively identified. Second, we need a paced reopening of the economy built on the premise of adhering to social distancing at least until treatments for the virus and, ideally, a vaccine, are available.
Walking the fine line between protecting people’s health and their livelihoods will be key for consumers. If we fail, a new second wave could create the true Lehman effect, as experienced during the Great Recession, for the current crisis. It would mean we would have to wait even longer for economic recovery to occur.