With so many businesses expressing pessimism in their forecasts for the next three-month period, it is particularly important to take a look at the most recent Business Expectations Survey with the goal of understanding some of the rationale behind these negative predictions. Given some of the recent economic concerns raised recently and some of the events further reinforcing these concerns, developing an understanding of the varied factors at play takes on additional importance.
According to John Pryor, strength may not be the word most would associate with the current state of the economy, but, at the same time, weakness seems like an equally unlikely term. The reason for this may be due to a clear disconnect between long- and short-term viewpoints, particularly since the expectations index shows demonstrable decreases across several critical measures.
For instance, the Sales, Profits, Employment and Capital Investment measure dropped significantly, going from 18.9 points to 13.2 points. While a 5.7-point drop seems almost devastating considering the relative brevity of the timeframe in which it fell so precipitously, it also ignores the fact that 13.2 points remains far greater than the measure’s 10-year average, which happens to sit at a quite modest 7.0 points. When discussing this with John Pryor, rugby was presented as a helpful analogy.
Essentially, Pryor sees this is as very similar to an instance in which an athlete has made tremendous long-term gains overthe course of a year but has hit a training plateau that makes it feel as though there has not been any progress made at all. While they may be stronger, have a greater capacity for endurance and can sprint faster than ever before, the athlete is troubled by the lack of gains made over the past two weeks and refuses to recognize the substantial gains made over the past 52 weeks.
While it is clearly important to note the decrease in these and other economic measures, it is equally necessary to recognize that there are a variety of factors that still point to an economic turnaround in the not-too-distant future. Softened expectations will always raise a few eyebrows (as they certainly should), but interest rates remain incredibly low and the export sector seems to be positioned exceptionally well from a competitive standpoint.
It may indeed be problematic if the dampened business expectations continue unabated, but there are just too many otherpositive factors to consider that it is clearly unnecessary to panic or even worry to any significant degree over the current conditions. Commodity prices are coming around and the dollar has retained its strength, so there is plenty of reason for optimism as the country moves forward.