What goes up…

The Ken and Glenn show is sending out warning signals to smart companies to avoid irrational exuberance, despite the fact that in late August the weekly Roy Morgan Consumer Confidence Rating regained levels not seen since December 2007 at 123.7 – 24.4 points higher than this time last year. Rates are about to rise and new taxes are about to be announced by the end of the year.

The weekly Roy Morgan Consumer Confidence Rating indicates increasing confidence about the prospects for the Australian economy both in the short- and long-terms.

In terms of the Australian economy, 40% (up 1% in a week and the highest since December 2007) of Australians say we’ll have “good times” financially in the next 12 months compared to 22% (down 1% and the lowest since December 2007) that say we’ll have “bad times” financially.

It is important to recognise that what has held us up in the periods of the “worst of times” is about to come down, as equity markets indicate that investors are back in the market for greater returns.

The treasury and finance boffins are already plotting to raise interest rates on loans to small business, cut back on the stimulus packages that have carried Australian retail growth ahead of the rest of the world and claw back the funds on housing and school construction.

The global economy contracted further during the first few months of this year and the apparent improvement in earnings comes from stark off-shore cuts in employment, with more than half a million people losing their jobs in the US alone.

While the near-term outlook appears to be stabilising, and the Chinese market stimulus package delivering an 8% growth, there are few signs of independent expansion and many signs of deep decline and continuing foreclosures in the housing market.

The RBA is watching this two-tone situation closely, suggesting that the considerable economic policy stimulus packages around the world are only just getting their funds out to market, but will need to be curbed to halt a return of the inflation dragon.

The RBA believes that conditions in global financial markets are on a path of gradual improvement, with equity prices off their lows, term spreads declining and capital markets reopening. The danger is that the leading edge of equity market confidence can lead to the expectation that improving balance sheets through cost-cutting is going to lead to improved sales and performance for the rest of this year.

Credit for start-ups and small business remains very tight and unemployment levels will continue to rise. September is likely to see what has been growing starting to slow down and potentially reverse without being propped up by the central banks. Continued progress in restoring sustainable prosperity is the key to New Year recovery.

Gary Morgan says: “The weekly Roy Morgan Consumer Confidence Rating has continued rising in late August (up 1.1 points). Australian GDP figures for the June Quarter are set to be released next Wednesday and the strong performance of the weekly Roy Morgan Consumer Confidence Rating during the first half of this year – including rising strongly throughout the June Quarter – suggests Australia is likely to have continued growing during this period.”

“Australian confidence about the long-term prospects for the economy over the next five years – a clear majority of 55% (up 4%) of Australians expect ‘good times’ economically – are a strong indicator of the underlying strength of the Australian economy over the long-term.”

Now is the time for smart companies to focus on locking in forward contracts, opening up the doors to export markets in the Asian economies and narrowing inventory to items that will have a ready market from late October this year. Forward planning and good sales leads need to be converted into long standing business relationships.

Dr Colin Benjamin
Entrepreneurship and Strategic Thinking Consultant

Marshall Place Associates offers a range of strategic thinking tools that open up a universe of new possibilities for individuals and organisations committed to applying the processes of innovation, creativity and entrepreneurship.

Email dr.colinbenjamin@marshallplace.com.au
Contact: CEO Dr Jane Shelton, Phone +61 3 96400099

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