The beginning of a new year usually means a new start for lot of things, and if ever we needed a new start, this is probably a good time for it. When I think about last year compared to the coming year now upon us, I find it much more difficult than usual to plot the curve… the shape of things to come, if you will. Not that I’m one who tries to predict the future by looking at the past – it goes against my grain as a market research professional – but there’s usually a better defined thread of continuity between years than I can readily discern in these most unusual times.

Why is that, I wondered; what’s so different this time around? Well, I think part of it is because the recession we’re still suffering from actually started almost a year before being acknowledged by those who are supposed to keep track of such things. Indeed, even though the signs were there and many of us knew or strongly suspected it, the official procla­mation wasn’t made until the end of 2008. Until then, I believe we were operating under what many of us thought – but couldn’t really prove – was a false sense of economic equilibrium. As a result, we’re now entering the third year of what feels like a completely random pattern. At this point, “Chaos Theory” comes to mind.

For those who may not be familiar with the fundamental concept of Chaos Theory, it comes from the fact that the systems it
des­cribes are apparently disordered, but the theory is really about finding the underlying order in what appears to be random data. The first true experimenter in Chaos Theory was Edward Lorenz, a meteorologist who was working on the problem of weather prediction in the 1960s. He had a computer set up with twelve equations to model the weather. Although it didn’t predict the weather itself, his computer program did theoretically predict what the weather might be.

In more technical terms, Chaos Theory is the study of nonlinear dynamics, where seemingly random events are actually predictable from simple deterministic equations. The two main components of Chaos Theory are: 1) The idea that systems – no matter how complex they may be – rely upon an underlying order, and 2) that very simple or small systems and events can cause very complex behaviors or events.

To illustrate these points, Lorenz first described something called the “butterfly effect” at a meeting of the American Association for the Advancement of Science in Washington, DC in 1972. In a 1963 paper for the New York Academy of Sciences, Lorenz had quoted an unnamed meteorologist’s assertion that, “…if Chaos Theory were true, a single flap of a single seagull’s wings would be enough to change the course of all future weather systems on the earth.”

By the time of the 1972 meeting, he had examined and refined that idea for his talk, “Predictability: Does the Flap of a Butterfly’s Wings in Brazil set off a Tornado in Texas?” The example of such a small system as a butterfly being responsible for creating such a large and distant system as a tornado in Texas illustrates the impossibility of making predictions for complex systems. And, despite the fact that these effects are determined by underlying conditions, precisely what those conditions are can never be sufficiently articulated to allow long-range predictions.

So what does this all have to do with the outlook for 2010? Well, first of all, I think we can all agree that the outlook has been pretty fuzzy – okay, downright erratic – for most of 2009. And now that we’re into a new year, it doesn’t seem to be much better – let’s just say uncertain, at best. But amid all of this apparent chaos, I do believe it’s possible to pull a few examples of cause and effect out of the morass of technical, financial and political issues and trends.

It’s not too hard to see why the pace of business slowed toward the end of last year when the recession had been in full force for nearly two years. Yet although most businesses were practicing the belt-tightening that one would expect, I don’t know that most people really had any idea just how bad it was – or how long it was going to be before it would get better.

Then, as bad news mounted and the American Recovery and Reinvestment Act (aka Stimulus Bill) became a reality, there was a rather bizarre mix of optimism and pessimism toward the end of the year. This was a most peculiar circumstance, since it’s usually one way or the other, but not both.

I suppose one explanation was a pervasive feeling that although we had a big problem help was on the way, but we know now it isn’t going to be that simple. Moreover, the stark realization that the Stimulus Bill wasn’t going to be a panacea struck yet another blow to what we had all hoped would be a fairly quick recovery.

The fact is, not only did the Stimulus Bill not have an immediately positive impact; it actually had quite the oppo­site. That is, once it became apparent that there might be a way to obtain Stimulus funding for a wide range of expen­sive infrastructure projects, many of those same projects were immediately put on hold or canceled altogether – not exactly the outcome anybody wanted to see in the midst of an already severe business downturn. Even so, some critical projects still moved forward, lending a modicum of stability to a severely weakened economy – yet another anomaly in an increasingly unpredictable period.

So, how to make sense of all this? Perhaps “sense” isn’t the right word, but for what it’s worth, here’s how I see the outlook:

1. Don’t expect the downturn to end anytime soon – probably not before mid-year at best. That’s because it’s one thing to announce Stimulus funding and make the awards; it’s quite another to actually have those funds in hand. Speaking from our own post-Katrina recovery here in the Gulf Coast Region, we learned first hand that the wheels of government turn slowly. And although I do believe that positive steps are being taken to move things along as quickly as possible, I’m guessing that the money probably won’t be available as fast as most people think.
2. Job recovery is still a huge problem and will continue to be for a while yet. The problem is that you can’t have job recovery until you stem job losses, and even though the latter is happening at a fairly good clip, we haven’t turned the corner yet because we’re in a very deep hole that we have to dig our way out of first.
3. But wait… the news isn’t all bad. I firmly believe that anytime you throw three quarters of a trillion dollars at something, it’s bound to leave a mark – a big one. However, it’s still way too soon to see it (refer to #1 and #2 above), so those who are saying the Stimulus isn’t working are just ahead of the reasonability curve. There’s a certain incubation period that cannot be shortened or avoided, so I’m afraid we’ll just have to be patient a bit longer. Will there be waste and inefficiencies? You bet there will, but with that much money involved, I predict that there WILL be projects and there WILL be jobs – lots of both.

So rather than looking for direct correlations, patterns and trends, I’ve decided to put my faith in Chaos Theory and assume that there really is some rhyme and reason to all of this, even if it may not be immediately apparent. And let’s hope that those butterflies flapping their wings do set off a tornado – an economic one. – Ed.