Monday, 26 July 2010

Could the media talk us into a double-dip?

What is the biggest worry for business at the moment? Lack of bank lending? Austerity measures? Public sector cost-cutting? Well the answer is none of the above, at least amongst senior management at a number of firms I have talked to over the last few weeks.

Apparently, the biggest fear at the moment is the media. How so? Well there are concerns that media negativity about the state of the economy will hit consumer and business confidence, sending us into an economic tailspin when things for many are actually going quite well at the moment. The word from two UK manufacturers I have spoken to recently is of strong sales, good pipeline and increasing confidence. The feeling is that the both business and the public in general have held back investing for long enough and are now dipping into their pockets once again. Of course this isn’t true of all sectors (the cuts to the school building programme were another knife in the back of the construction sector) but it is clear that consumer and business confidence are in reasonable health, which is good in the circumstances.

However, confidence is fragile. I vividly remember having dinner with David Smith, economics editor of the Sunday Times a few years ago (namedropper, moi?) and he readily admitted that there is a bad news bias which can easily affect both business and consumers. Therefore, at times like this I think we should all use our own judgment rather than just rely on the headlines. Smith famously has his skip test to gauge economic activity (ie. consumer confidence is directly related to the number of skips in his road from people undergoing house renovations) while I look out for new cars on driveways, and ‘sold’ signs in front of houses. At present both of these indicators are positive, at least where I live.

My gut feeling is that we will weather this (Friday’s GDP figures were another welcome boost) as most businesses are now very lean and we have stored-up demand due to the fact that nobody has spent anything over the last few years. Barring major shocks, this should be enough to see the private sector through.

The public sector is another matter entirely. As one client put it to me a few weeks ago, “I think they are going to feel some of the pain the private sector felt 12 months ago.”


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