Story URL: http://news.medill.northwestern.edu/chicago/news.aspx?id=106423
Story Retrieval Date: 7/24/2014 12:01:55 PM CST
Top Chicago business leaders delivered the grim news on the global recession at a panel discussion on the financial crisis Wednesday.
Michael Moskow, former president of the Federal Reserve Bank of Chicago, said that while the economy is bad now, it is going to get worse. He said unemployment rates are likely to go above 7.7 percent, compared with 6.5 in October.
Moskow added that unlike the 2001 recession the current one “is a consumer driven recession” and is expected to be a blow to people from all socioeconomic classes. This increase in unemployment means less money for people to spend, causing consumer spending to continue declining rapidly as the gross domestic product also drops by 6 percent or more, Moskow said.
Thomas Pritzker, chairman of Global Hyatt Corp., said the rapid global decline has led to so much uncertainty in the hotel business that “no one is able to project for next year."
Pritzker said his industry is experiencing a lack of confidence in the system leading to a drying up of liquidity. He doesn’t expect that to change soon.
“Fourth quarter, the industry will be down 11 percent year over year,” according to Pritzker.
The decline in growth and scarce debt facilities mean that there will be fewer new hotels built across the world in the foreseeable future by Hyatt and other hotel chains, as they cut down on capital expenditure and acquisitions and focus on saving cash, according to Pritzker.
Thomas Wilson, president of Allstate Corp., said he was preparing for a deep recession and that the crisis is down to “a lack of information, a lack of confidence and a lack of liquidity” because the markets have collapsed.
He said navigating the current markets is akin to a group of blind people assembled in a room, all trying to look for an exit without adequate knowledge of the surroundings. “If you’re blind, you can’t see and if you can’t see, you can’t act,” Wilson said.
Gordon Segal, chairman and founder of Crate and Barrel, said the growth in the last decade was unsustainable. Therefore, these challenging times indicate that “we are coming back to a bit of reality."
In spite of the dark clouds hanging over their businesses and the global economy as a whole, the panelists sounded hopeful.
Wilson said that a substantial stimulus package targeted at healthcare, energy and education infrastructure will go some ways in cushioning the harshness of the recession. “The good thing is that when the house is on fire, everybody starts working together to get out of there,” he stated.
Segal said companies must approach cost cutting cautiously. Urging them to keep talent, Segal advised businesses to “make sure you’re using a scalpel, not an axe” when cutting costs.
Pritzker said that more than ever this is a time for companies to put employees and customers first. “The key to the hotel business is people, people, people,” Pritzker said. Given the uncertainty facing employees, management will be well served to create programs that allay their fears and anxieties.
“What they’re living at home is a very stressful situation. Our job is to see how we avoid that bleeding into the workplace,” Pritzker said.
For Segal, these are times to separate the boys from the men in the industry. “It’s probably in one way the most exciting time in retail in a while,” Segal said. “All this great run that retailers had, now we’re going to see who’s the best of the best.”