Unlocking the economic uncertainty – 10 indicators entrepreneurs need to watch

As the biggest names in corporate Australia line up to deliver their companies’ latest profit results, there is a common message emerging about Australia’s economic outlook – the next 12 months are extremely uncertain.

In the last few days, Telstra chief executive David Thodey, Commonwealth Bank boss Ralph Norris and Myer chief Bernie Brookes have all warned about the fragile state of Australia’s economy and warned shareholders that the next 12 months are likely to be difficult as consumer sentiment remains weak.

It’s symptomatic of an economy where a large number of sectors appear to be running out of steam. While the strong performance of the mining sector will keep economic growth ticking along at a respectable 3% in the next 12 months, the retail, property and construction sectors are struggling.

But the situation is not just limited to Australia. Overnight in the US, where this week’s data revealed the number of unemployed had jumped again, leading tech chief executive John Chambers from Cisco also warned about the global economic outlook.

Chambers has become a much respected voice in corporate America, after he warned in 2007 – well before the GFC – that the economy was slowing.

Today he sent Cisco shares plummeting with another bleak assessment.

“We are seeing a large number of mixed signals in both the market and from our customers’ expectations, and we think the words ‘unusual uncertainty’ are an accurate description of what is occurring,” he told analysts.

Given this uncertainty, entrepreneurs need to be closely watching economic data from Australia and abroad to get a sense of how their customers and competitors are tracking.

Here are 10 key indicators to watch:

• Australian employment data

Consumer sentiment tends to be formed by two things – interest rates and job security. While Australia’s labour market is strong and unlikely to change, little anomalies like yesterday’s rise in the jobless rate (driven by the fact more people are looking for work, and not by the fact employment is falling) can shake the already fragile confidence of households.

• US employment data

As we’ve pointed out before, the fact that the US unemployment rate is not improving despite trillions of dollars worth of stimulus measures is not a good sign. If US employment continues to fall, the risks of a double dip recession increase. And it will only be when the economy starts adding jobs that we will know a real recovery is underway.

• Inflation

Australia’s interest rate outlook is almost entirely reliant on what happens with inflation. If it rises over the next six months, so will rates. How will this impact your business?

• House prices

House prices seem to decide how wealthy Australians feel – even if they can’t really unlock this wealth in a hurry. Steady house prices will be good from a economic point of view (no one wants a housing bubble) but a slight fall in house prices could shake consumers up further.

• Retail sales

Monthly retail sales figures give us a great insight into how consumers are travelling, and what they are buying. Also watch the sales from big retailers including Myer, Coles, Woolworths and Harvey Norman.

• Business investment

Particularly crucial for anyone selling business-to-business – when companies feel confident, they will start spending again. However, it’s important to watch business investment outside the mining sector – the miners will be spending up big over the next 12 months and this well skew the figures.

• Business conditions

There are a number of surveys of business confidence and business conditions released every month, and they are worth studying. However, it has been noticeable this year than companies have been quite optimistic when looking forward, and quite disappointed when examining actual trading conditions. Keep your eye on the actual conditions – while this data is backwards-looking, it does explain what is happening on the ground.

• China

Any data out of China should warrant a quick look – economic growth, interest rates, house prices, loan data or anything else that shows how the economy is tracking. The big fear is that China could slow markedly at a time when the US and Europe and struggling, so entrepreneurs should watch this closely.

• The sharemarket

For many entrepreneurs, the daily ups and downs of the market don’t have a direct impact on their business. But like house prices, big movements in shares can impact how wealthy people feel and therefore how they spend. This is particularly the case in sectors where retirees make up a big part of your client base – when shares fall, their superannuation also takes a hit.

The dollar

Companies with exposure to international markets watch the fluctuations in the Australian dollar like hawks, but even domestic entrepreneurs should keep an eye on our currency, particularly to determine how movements in the dollar might affect the competitiveness of overseas rivals.