Perhaps we’ve just got to the end of the inventory clear out, wonders Lucy Saunders, Finance Week’s Big Mouth MD.
In the last week, the OECD has said that the UK is one of four advanced economies that is showing ‘stronger signals of a possible trough.’ The UK’s own Office of National Statistics has told us that manufacturing output is up by 0.2% in April and the Department of Communities and Local Government that the average cost of a home in the UK jumped by 1.1% at the same time.
The media does have a remarkable short attention span, so maybe the willingness to talk about anything that makes the situation look more jolly is not surprising. There are some darker numbers too. The Manpower Employment Outlook Survey said that 81% of employers interviewed do not intend to make any more redundances but employers in 22 of the 34 countries surveyed are forecasting negative outlooks. 17 are reporting their weakest hiring plans since the survey started, some 45 years ago.
It's still getting worse
Every year, we see photos of snowdrops and daffodils out at ridiculous times (either early or late, doesn’t really matter, both are signs of climate change), birds and beasts doing what comes naturally at an unnatural time, so we should regard these tentative signs in the same way. Interesting and unusual enough to provoke comment, possibly a harbinger, but of what, who knows.
Professor Willem Buiter at the LSE says the economy is still getting worse but just not getting worse as fast as it was before. The lending situation is still critical. Any business has to think about how it is going to future-proof itself for the next round, because, human nature being what it is, there is bound to be a next round.
Future proofing a business is the fine balancing act that every board of directors has to deal with, all the time, just made more complicated by factoring in more uncertain financial elements and the higher cost of money. Working out which part of the organisation needs the money, whether that is people, innovation and development, customers and customer service, back office function, is what keeps being a company director interesting.
Cash matters
Capital is always king, just more obvious now than before, and every FD will be thinking about liquidity and accessibility as well as amount. One thing is for sure, whatever else happens as fallout from the financial crisis, everyone is going to be on top of their cashflow.
Is it wise to have a recovery too quickly? Do we want everything to go back to how it was before, when certain individuals in the financial sector got huge bonuses bigger than lottery winnings, making us all feel unloved and unwanted when we didn’t get the same, and at the other end of the scale, individuals with very limited financial outlooks got access to debt, credit and mortgages which changed their lives forever, not necessarily for the better, depending on when they bought a property?
While the media might be delighted to haul us out of recession, this could be like the anticipated trajectory of swine flu. You know the one, where a mild version lulls us all into a false sense of security, kills a much lower percentage of people who get it than expected even if it is easily transmitted and reaches enough countries to be a pandemic officially. The real killer version hits us within 12 months later, and that is when millions die round the world from flu.
Private not public growth
The most important, and crucial moment in the economic recovery will be when the private sector starts driving the recovery rather than the Government. We are still way off securing international regulation in the financial sector, which will be essential if we are to avoid the same thing happening again.
While personally not a fan of regulation, even I can see that making regulation country specific for a global financial market rather than international means all the institutions will go where the regulations suit them best. The World Trade Organisation is an example of how to get things done internationally.
Tooth grindingly slow, admittedly, but it does get there in the end. Inertia and the human appetite to avoid change means that we would willingly just switch back to where we were, rather than make the fundamental changes that are truly needed. It is all a bit like Saint Augustine asking God to make him chaste, but not quite yet. We want other people to have much stronger barriers to loans but we want them easy for us.
As far as economic outlook is concerned, businesses need to look to their own long term survival rather than expecting the overall health of the economy to save them. Tough times do sort out stronger businesses, both in terms of ideas, products, delivery and service. Balancing long and short term thinking is always difficult, it just seems more difficult now, perhaps because we are all factoring in considerations of the economy.
Professor Michael Sandel, this year’s Reith lecturer who gave his first lecture last week on markets and morals, says that economics is a spurious science when it is used to tell us what we ought to do; that it is time for business to look at what to do in light of our immediate and long term needs without spending too much time second guessing economic variants.