Dodging the rough patches

Trying to read the economic and market signals right now isn’t exactly easy.

After a month of volatility on global sharemarkets, the Australian market has jumped almost 2% this morning, after strong gains in European and US markets. It seems like investors might finally beginning to tear down their wall of worry, built mainly around concerns about European debt, Chinese economic growth and the state of the global recovery.

While that should have been enough to cheer us up heading towards the end of the week, Virgin Blue came out and dropped a bomb on its shareholders, slashing its profit forecast for 2009-10 in half, from $80 million to just $20-40 million.

That news sent the company’s share price down more than 25%, but I think there’s something for the rest of us to be worried about too.

Firstly, it suggests consumers remain on their on-going spending strike, and holidays are well and truly off the agenda.

Secondly, it suggests that business people haven’t suddenly started flying around the place in bigger numbers, trying to win new business and expand into new markets. Could survival fears have replaced expansion plans once again?

My suspicions about a slowdown in business expansion were heightened by the release of the latest business investment data from the ABS, which showed investment fell 0.2% in the first three months of the year.

Worse still, CommSec’s Craig James says that the first time in over 20 years, businesses have trimmed their short-term investment plans. “And looking ahead to 2010-11, businesses expect to spend $103.9 billion, up just 3.7% on the forecast made three months ago.”

In other words, the big bounce back from business appears to be taking a bit longer than we might have hoped.

That’s certainly true in the international education sector, where industry leader IDP warned student numbers are likely to be down by about 20%.

And the retailers warning off tough times too, with Richard Goyder, chief executive of Coles Group owner Wesfarmers, warning yesterday that conditions would remain tough until Christmas.

The patchy conditions provide both a challenge and an opportunity for smart entrepreneurs.

While it will still be hard to get customers over the line, companies who have put their expansion plans in place will find they still have an opportunity to take advantage of weakened rivals.

But it’s a real mixed bag right now, and entrepreneurs need to be alert.