Economy’s traffic lights turn yellow

For all those who have been stuck on the red light, it really is time to hire some good sales staff, focus your inventory and talk to your advertising agency because the market has just shifted to yellow.

It was in November last year when we told you consumers were coming back into the market and smart companies need to plan for a much better financial year ahead.

As financial planning expert Nobby Kleinman commented back then: “Although the media continues to promote pessimistic news for the future, the reality is that Australians need to stop looking to the US for a fix to the current woes. The US started this, and it certainly isn’t the place to remedy it quickly.

“So Australians have always had an entrepreneurial disposition and kick start their own future instead of waiting for results from elsewhere in the world. We are more than resourceful enough and our dollar is still worth a dollar in this country. Stop moping around wanting the world to fix the current problem and get out there and do it for yourself.”

Now we see the weekly Roy Morgan Consumer Confidence Rating staying above the long-term average of the Roy Morgan Consumer Confidence Rating (1973-2009) of 106.0. In the US, the latest Reuters/University of Michigan preliminary index of consumer sentiment increased to 69 – less than forecast, but still the highest level in nine months. Confidence among US consumers rose this month for a fourth straight time, reflecting signs that the worst recession in at least five decades may end this year.

Aussie consumers still say we’ll have ‘bad times’ financially over the next 12 months. This measure climbed from 9% to 43% this week, but this is still 5% below the figure from late May.

Gary Morgan says: “The Australian economy’s positive growth in the March Quarter gives hope that Australia can continue to ‘surprise’ on the upside during the next year without slipping into recession.”

The reality is that despite a raft of worries – including concerns about the scale of the various central bank stimulus packages, increasing concerns about sovereign debt and worries about potential interest rate rises as oil prices climb and our currency follows it – customers have decided that house prices are going to rise again and now is not the time for gloom and doom.

The best signs from the US indicate that job losses are slowing, recent reports show housing and manufacturing – the two worst parts of the economy – are stabilizing, and the Obama administration’s fiscal stimulus is working like Rudd’s cash splash to shore up consumer demand.

“Confidence is slowly but surely coming back,” James O’Sullivan, a senior economist at UBS Securities LLC in Stamford, Connecticut, said this week. “In the next few months we should see more follow-through in the labour market, which in turn should give confidence.”

The World Bank has raised its forecast for China’s economic growth this year to 7.2% from 6.5%, acknowledging the boost that Beijing’s stimulus plan is giving the economy (although the bank cautioned that “it is too early to say a robust sustained recovery is on the way”.) The banks said strong government investment will support growth of China’s economy in 2009, although private investment is likely to continue to lag.

The ‘V’ shaped recovery of the stock market does not mean a return to double digit growth but it does mean that smart companies have to prepare for the “green shoots” that the commentators keep pointing to as evidence that the worst is over and the best is about to come.

But a word of warning: Watch out for the new gloom and doom calls about debts and inflation as we start to pay back all those floods of stimulus dollars and keep up the flight to quality products and services.