Michael Barbella Managing Editor Since the start of the Great Recession in 2008, financial an

Michael Barbella • Managing Editor

Since the start of the Great Recession in 2008, financial analysts, economists, politicians and business leaders have grown very fond of the term “new normal.” The phrase is used each time new jobless figures are released (“What is the New Normal Unemployment Rate?” a Federal Reserve Bank of San Francisco economic letter asked earlier this year), it’s been used to describe the U.S. stock market’s newfound bipolar disorder (“Volatility is part of the new normal, it’s here to stay,” Neel Kashkari, head of global investment equities at PIMCO, told CNBC late last month), and it’s been repeated ad nauseam by politicians forced to deal with deep cuts in government services over the last several years. “People are used to a higher level of service,” Merced, Calif., Mayor Bill Spriggs told a USA Today reporter in early February. “But this is the new normal.”

Though it has become synonymous with the most tenacious economic slowdown since the Great Depression, the phrase “new normal” was first coined during a more prosperous time in the world’s financial history. It surfaced shortly before the recession began, in a book written by Mohamed A. El-Erian, CEO and co-chief information officer of PIMCO, the Newport Beach, Calif.-based global investment solutions provider best known for bond investing. El-Erian used the term “new normal” in his book, “When Markets Collide: Investment Strategies for the Age of GlobalEconomic Change,” to explain a permanent shift in the world’s engines of economic growth. Under the new normal, El-Erian argues, emerging markets such as Brazil, India and China will drive the global economy, dethroning longtime monetary monarchs such as the United States and Germany.

El-Erian’s book predicts a post-recession world of lower investment returns, slower economic growth and higher odds of another unexpected fiscal crisis. Put simply, the world is headed toward a future where the range of financial outcomes—and risk—is much wider than usual.

“We are not going to go back to where we’ve come from,” El-Erian warned during the Milken Institute Global Conference in April 2009. “The notion should not be, ‘Is this recession going to be over?’ [The notion] should be, ‘What does the new normal look like when the system stabilizes?’ ”

Though the system is still stabilizing, El-Erian and those who subscribe to his theory believe the new economic landscape in America will resemble life in less- wealthy countries, where residents have struggled for years to overcome lower standards of living, high unemployment, stagnant corporate profits, heavy government intervention in the economy and disappointing equity returns.

Many of the implications for thenation’s future under the “new normal”already are being played out with alarming consequences in the business realm. The automotive industry, for instance, has had to adjust to a new reality of lower sales, fewer car manufacturers and dealerships, reduced inventories and more tradesbetween dealers as customers ordervehicles to their specifications.

Homeowners have had to cope with a “new normal” of rising foreclosure rates, more complex mortgages, larger downpayments and falling home prices that show no signs of bottoming out and—perhaps more importantly—challenge the conventional notion that homeownership is a solid investment. “Owner-occupied homes will always be the basis for healthy and stable neighborhoods,” Robert Bridges, a professor of clinical finance and business economics at the University of Southern California’s Marshall School of Business, wrote in a Wall Street Journal article on July 11. “But coming generations need to realize that while houses are possessions and part of a good life, they are not always good investments on the road to financial independence.”

Many venture capital firms have reached the same conclusion about medical technology companies. From 2006 to 2008—a period financial gurus have dubbed the “Easy Money Era”—venture funding poured into medtech firms by investors eager to capitalize on the latest innovations. Not anymore. Growing regulatory and pricing pressures as well as the preference of strategic buyers for later-stage exits seem to have permanentlyaffected venture capitalists’ sentiment and behavior toward medtech deals. Investors now seem to favor more “de-risked” assets and venture capitalists are more apt to carry their portfolio companies longer due to challenging exits, according to acomprehensive report on the medtech sector by global advisory services firm Ernst & Young. As a result, the industry has experienced a marked decline in the share of venture funding going to early rounds.

It’s part of the medtech industry’s“new normal.”

“It’s now becoming increasingly clear that medtech faces its own new normal,” states Ernst & Young’s report, ‘Pulse of the industry—Medical technology report 2011.’ ”This is an environment where companies face a confluence of risks and challenges: heightened regulatory scrutiny and payer pressure, a fundamentallydifferent funding climate and a rapidly changing customer base.”