Irrational exuberance?

One of the curious and enduring trends of the post-GFC period has been the almost unwavering confidence of business owners and managers in the prospects for the economy.

Since about mid-2009, business confidence measures have risen steadily and the latest set of numbers suggests the trend is showing no signs of ending.

According to Dun & Bradstreet’s latest business expectations survey, profit expectations for the March quarter of 2011 are at seven-year highs. Sales expectations are not far behind, at their highest point since December 2003.

But as we’ve seen for the last 12 months, business confidence appears to be tracking well ahead of actual business conditions.

Indeed, D&B’s figures on actual business conditions would suggest things remain very patchy.

While 34% of firms increased sales in the quarter, 19% saw sales drop. While 23% of firms increased profits, 17% saw profits fall. While 14% of firms increased staff numbers, 8% shed workers.

While the underlying trend does seem to be heading in the right direction, there is a bit of sense that executives continue to predict – or perhaps hope – for a recovery that is really yet to match their expectations.

So how do entrepreneurs interpret this data?

On the positive side, your customers are looking for ways to grow, and they are looking to invest in products and services that can facilitate that growth. Inventory levels and capital investment is rising, although the rate of increase clearly differs markedly from sector to sector.

Customers are willing to listen and prepared to spend.

However, closing deals doesn’t look like getting any easier. Customers might be optimistic, but until they see that optimism convert to hard results, they will remain cautious. Being prepared to negotiate and customise products and solutions to close deals will remain crucial.

Finally, interest rates remain the real wildcard. More than a third of businesses surveyed by D&B said rates remain the biggest influence on their business and while economists are tipping we will get a few months without a rate rise, it will come sometime in the first half of 2011.

If actual business conditions haven’t improved by the time rates rise again, this patchy environment will be prolonged.

COMMENTS

Subscribe
Notify of
guest
0 Comments
Inline Feedbacks
View all comments
Close
SmartCompany Plus

Sign in

To connect a sign in method the email must match the one on your SmartCompany Plus account.
Or use your email
Show
Forgot your password?

Want some assistance?

Contact us on: support@smartcompany.com.au or call the hotline: +61 (03) 8623 9900.