03/18/2010 05:12 am ET | Updated May 25, 2011

Don't Get Too Excited by Green Shoots, They Might Turn Brown

Last week, the Dow broke through the psychological barrier of 10,000 and many breathed a sigh of relief. The call went out that the economy was about to emerge from what can be characterized as the darkest financial period in recent history.

There certainly are green shoots indicating that the worst of the recession is behind us. When reporting relatively strong third quarter results for Google, CEO Eric Schmidt said, "While there is a lot of uncertainty about the pace of economic recovery, we believe the worst of the recession is behind us and now feel confident about investing heavily in our future."
Similarly, Steven Bird of Safeway described his Coffee Index, a measure of consumer confidence (The Los Angeles Times, October 16). When the recession first hit, consumers switched from lattes to coffee and now Bird can see a swing back to lattes again. Likewise, consumers are starting to shift back to premium wines. All signs are that some consumers feel the economy has reached the bottom and we can start to return to some simple pleasures of life.

As we frantically look for evidence of economic recovery, we need to take care not to mistake all measures as signals that consumer spending is on the rise again. Take computers as an example. I read in BusinessWeek (October 26) that many consumers have put off buying new computers because they didn't want to end up with Microsoft Vista. Now that Microsoft has launched Windows 7, a lot of people will be in the market trading in eight-year old machines. The point of this example is not to mistake an increase in the purchase of computers as a signs of economic growth.

The National Bureau of Economic Research (NBER) defines a recession as a "significant decline in economic activity spread across the economy, lasting more than a few months". Gross domestic production (GDP) and employment are seen by NBER as the primary measures of economic activity. When I talk to senior managers, many feel that sales are now flat and no longer declining. This is certainly encouraging news. Add to that encouraging quarterly results with supporting comments by CEOs saying that the bottom of the economic downturn might in fact have been reached.

But, predicting economic recovery is quite another story. In the State of California, for example, almost 1 in 5 people are said to be affected by the recession through job loss, or a reduction in hours and/or pay. Those who work for the State of California, fear that more bad news is on the way with State revenues likely to be about $1b less than what was forecast for the current year. Add to that the "Lost Generation" (BusinessWeek October 19), a generation of college graduates who have not been able to get work and who might consume differently as a result of the impact (both financially and psychologically) the recession has had on them.

The point of all of this is that while signs that the recession is drawing to a close might excite us, turbulent times will continue as we find innovative ways to generate growth. As James E. Skinner, the CEO of Neiman Marcus said, the recession "is forcing us to experiment".

Jenny Darroch is on the faculty at the Drucker School of Management. She is an expert on marketing strategies that generate growth. See