The Aftershock Investor: A Crash Course in Staying Afloat in a Sinking Economy (34 page)

To a large extent, this same trend will happen throughout the discretionary spending sector. Instead of brand names, we’ll want bargains. We will still want to buy some stuff that we don’t absolutely need, but we will buy less of it and we will want it at lower prices.

Because consumer spending drives more than two-thirds of the U.S. economy, any decline in consumer spending has a big impact on the overall economy. This is a new situation for the United States. Back in the 1920s, when the nation was much less wealthy and was heading into the Great Depression, consumer spending represented a much smaller portion of our overall economy. So when the stock market bubble crashed in 1929, and the economy took a major downturn, the large dip in consumer spending back then had a much smaller impact on the overall economy because it just didn’t make up that large a part of the economy. Other industries took a big hit, but people still had to eat basic food and buy basic clothing, so most of these industries just kept on going.

We are in a different situation today. So much of what we currently buy (and that keeps our economy going), we can easily do without. We may not like to skip the latest, high-priced fashions, but if we have to, we can easily shop at lower-end and discount stores. We can also survive quite nicely without $100,000 kitchen makeovers, complete with granite countertops and stainless steel appliances. As incomes and assets evaporate, Americans will learn to manage without these pricy pleasures.

While the discretionary spending sector will be hit less hard than the capital goods sector, the fact that discretionary spending has become such a big part of the current U.S. economy means a downturn in this sector will greatly accelerate the popping bubbles and make our postbubble recovery even harder.

We’ve already mentioned how the slowdown in the discretionary spending sector will harm many businesses in the restaurant, retail, and home improvement industries. The travel industry has already taken a big hit, and that will continue as the bubbles fall. Leisure travel will be especially stalled, while more Americans will travel to locations that are closer and cheaper—such as into their living rooms to watch TV. Major entertainment destinations, such as Orlando and Las Vegas, will hang on due to liquidation of assets and to foreign visitors coming to spend their more valuable currencies in our cheaper playgrounds. Once the dollar bubble fully falls and the Aftershock begins, leisure travel by Americans going overseas will face the double whammy of minimal discretionary spending and a dollar that has fallen dramatically against foreign currencies.

Business travel will suffer, as well. Domestic business travel will decrease as the bubbles continue to fall and companies become more interested in cutting costs. Overseas business travel will be hit by high costs and the low value of the dollar, so only the most important overseas trips will continue. Once the Aftershock hits, our imports will be way down and there won’t be much need for business travel overseas at that point.

If you are currently employed in the discretionary spending sector and are in a position to retrain for another career, this would be a good time to look for a job elsewhere, such as the necessities sector.

Most businesses in this sector will experience some downturn as the bubbles continue to fall, and in the final pop and Aftershock, many will not survive. Businesses that have the best chances of survival during these increasingly leaner times will include low-end restaurants, low-end clothing stores, discount shops, used clothing and household furnishing stores, and businesses that cater to local or inexpensive travel.

If you own a business in the discretionary spending sector, you might want to give some thought to selling it. If you were already thinking of selling your business, you may want to move that time frame up and sell sooner rather than later. Waiting until many business owners start to realize that they need to sell will not be a good time to put your business on the market. Lots of sellers and not many buyers will mean prices will go way down.

In addition, you will be fighting against some demographics. Many businesses are owned by aging Baby Boomers, and as they get closer to retirement, they will become more risk-averse and more likely to want to cash out of their businesses. Having more businesses for sale when you want to sell your business will make it harder for you to find a buyer. If you wait too long, you may risk facing the coming price drops.

Here is where we actually agree (somewhat) with conventional wisdom. Jobs and businesses in health care, education, and the government will do relatively better than in the other sectors. But even jobs in the necessities sector will not be perfectly protected before and during the coming Aftershock.

Historically, many of the jobs in this sector don’t pay very well, and they will pay a bit less after the bubbles pop, when there are more workers available than jobs. But if you have a job in this sector, at least you have a job, and it will be much more reliable than most other jobs as the bubbles fall and later in the Aftershock. Even at lower pay, necessities sector jobs will be a godsend for families with a spouse who used to make more money than his or her mate but is now unemployed. The lower-paid, still-employed spouse, working as a nurse, teacher, medical administrator, or other necessities sector employee, will likely retain his or her job and be able to carry the family through the worst of the downturn.

But please understand that even in this sector, not all jobs will be equally protected. Many necessities sector jobs will not survive in the Aftershock. Why? Because they may not be “necessary” enough. So even in this sector, you will need to plan ahead.

The necessities sector is composed primarily of health care, education, utilities, basic food, basic clothing, and government services, usually run by government or other nonprofit entities. The private companies that supply these government and nonprofit entities have the potential to survive, as well. Of course, as the bubbles fall and eventually pop fully, the necessities sector will also take a hit because it currently contains a larger portion of discretionary spending (spending on high-end items within the necessities category) that will eventually be cut. So even within this relatively good sector, some jobs will not stay.

Health care is currently a very strong element of the U.S. economy, and it will continue to be the best bet in the necessities sector as the bubbles fall and fully pop, but there will still be some negatives, especially as unemployment rises and health care revenues decline.

Health care capital goods, such as radiology machines and hospital construction, will not do very well. However, businesses providing services and supplies to the health care industry will continue to do okay, even though they too will experience some downturn. Health care services jobs that will do the best include:

• Nurses
  
• Primary care doctors
  
• Psychiatrists
  
• Nurse practitioners
  
• Physicians’ assistants
  
• Medical technicians, support personnel, administrative staff, and others involved in primary care medicine (not specialties)
  

Specialists and their supporting staff and services will not do well, with surgeons taking the biggest hit due to falling demand. Elective procedures, such as cosmetic surgery, already had a downturn during the financial crisis. If you can, transitioning out of these kinds of nonessential medical jobs into more basic areas of health care would be ideal.

After health care, the next best positions in the necessities sector will be government services jobs, such as police and firefighters. As in past recessions, government services will still be needed. However, unlike in past recessions, in the Aftershock, government services will have to take deep cuts when the government can no longer borrow money after the government debt bubble pops. Before the Aftershock, government service jobs will hold on and may seem protected, but they could be pulled out from under you later, when things get worse.

This will be particularly true for private companies that have contracts with the federal government or states. Businesses and individuals who supply capital goods or construction services to the government will be hit. Road construction and maintenance, and transportation in general, will do poorly as the money for these expenditures dries up. Businesses that can make the switch to repair work and repair-related services will fare far better.

Along with health care, the demand for public education will continue, so businesses that supply education or health care products or services to the government will benefit from strengthening their marketing and business ties to these areas and increasing their percentage of sales in these sectors.

Jobs in education will be more secure than in, say, the restaurant business (discretionary spending sector), but do not make the mistake of thinking that
all
education jobs will be fully protected as the bubbles fall. As tax revenues drastically drop at both the state and local levels, funding for education will fall. Long term, jobs at primary and secondary schools will hold up better than those in higher education. Some number of elementary, middle, and high school math and science teachers will still be in demand, but as class size expands, many math and science teachers will not find a job.

Music and art teachers will face more layoffs, along with extracurricular personnel. Once the bubbles are fully popped and the Aftershock begins, we may find that seniority and union membership won’t matter much. Instead, if you want to get or keep a job in education, you will need to be very good at your job, be willing to teach more classes to more students, and be loyal to your school’s administration.

The picture for higher education will be tougher. Strong departments in practical fields, like engineering and computer science, especially at top colleges and universities, will fare better than those in “soft” departments (sociology, English, etc.) at liberal arts schools. Don’t count on tenure to save you if your department has to take big budget cuts. If you are lucky enough to be retained in a strong department, be prepared to teach more classes for less pay.

One of the obvious job trends as we near the Aftershock will be growth in cash businesses and jobs. Expect that jobs in restaurants will increasingly be paid with cash and many people will be able to find temporary jobs or consulting jobs that pay cash and will be willing to work at lower rates. The underground cash economy will likely grow substantially, as it has in other countries experiencing a major economic downturn. Jobs in repair, as we mentioned earlier, will be more resistant to the downturn and are the type of jobs that can be easily paid for in cash.

Also, another current trend that will continue into the Aftershock, and especially afterward, will be higher pay and growth in demand for highly skilled blue-collar jobs. Although highly skilled blue-collar workers will be hurt like most job seekers, this area will still offer reasonable pay and decent opportunities even during the Aftershock. This is especially true if these skilled jobs also involve difficult working conditions, such as being an electrical lineman who has to repair electrical lines in storms. Such jobs will continue to pay relatively well and there will be decent demand, mostly because many people with skills don’t like those kinds of jobs. Even now, there are lots of vacancies for these types of jobs and significant turnover in many of them. Although conditions will tighten considerably in the future, this will still be an area for employment simply because of the skills required and many people’s unwillingness to work under bad conditions.