FOUR INDICATORS OF ECONOMIC RECOVERY
Newcastle Financial Planners like yourself, hear every day of what is happening on the stock exchanges of the world and the ups and downs of the Australian economy. We receive one minute grabs and only occasionally do we hear or read more in depth commentary. Many of our Newcastle Financial planning clients are keen to keep track of the economy by following certain indicators.
According to a recent survey by Dun & Bradstreet the majority of Australian business executives are experiencing increased confidence that business is improving and they expect profits will increase during the December 2010 quarter. So what signs are there for financial planners and investors to look out for to determine what economic recovery looks like? To assist investors we believe that there are four simple signs.
- Employment – Generally, the correlation between an improving economy and an increase in employment figures are an indication of economic growth. However, there are issues to look at beyond the headlines, such as jobless recoveries where there has been enough stimulus to get businesses going again but not enough to stimulate or sustain hiring more people. Also, whilst unemployment figures are often given a lot of weight by the media, it is important to remember that there are time lags as well as increases in part-time work which may have an attendant drop in the full-time rate.
- Consumer Confidence and Spending – In addition to the present resources boom in Australia, the economy relies on consumer spending, so spending can be one of the first signs that the man in the street has increasing confidence in the economic recovery. Whilst in the longer term consumers may realise that they should save more and buy less, it is the rebounding of spending that quickly heralds increased confidence of an economic recovery. As Australia is an island and as we have, over the years, become less of a producer and manufacturer of goods, most of what we purchase comes from overseas, so our import figures will also increase with additional spending.
- Business Indicators – Optimism by the business community and the attendant opportunities and embracement of expansion following consumer spending gives signals of economic recovery. Businesses will rely on receiving an increasing number of new orders, higher production levels with timely deliveries from suppliers and increasing employment and inventories all indicate good economic conditions as well as increased competition to ensure they do not lose any market share in the recovery phase.
- Bank lending – In Australia part of the community confidence for the economy relies on home ownership (whether for personal living or investment) so bank lending is an area for both business and personal needs. Whilst public companies are not entirely dependent on banks to grow their businesses, small businesses, as the main employer in the country, do not have the opportunity to expand without the assistance of bank lending, and without that expansion a stable recovery and higher employment is not possible.
One of the best ways to keep up to date with the economy as it has performed is to visit our Economic News updates called month in review, these reviews look at the economic indicators released in the previous month reviewing for example the unemployment rate, retail sales, construction and housing growth, US economic indicators, Australian Equities, Global equities, REITS (Listed Property Securities) Fixed interest and the S&P ASX 200 stock performance for the previous month.
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