Weak Business Confidence, Why, and What It Means

Economy.com recently launched a new business confidence index that assesses business hopefulness on a weekly basis. Go here to check it out. (You must subscribe to Economy.com to get access to the detailed information.) Here's the picture over the past month.

First, business confidence worldwide is falling fast, down a sharp 30% from the start of the year. Confidence in North America and Asia are especially weak, although European confidence is also deteriorating. Confidence in Latin America is holding up for now. In short, no place across the globe has been spared.

Confidence in both current business conditions and prospects six-month hence has fallen significantly, although expectations regarding the future have eroded more substantially in recent weeks. This says that businesses are not very hopeful, right now, about the next 6 months. Implication: not many business investment deals expected.

Nearly all businesses indicate that weak sales are their most substantial problem. Businesses are paring their investment and hiring plans in response. Pricing appears to be holding firm.

The sharpest declines in confidence have occurred in government and business and financial services. Confidence in the health care and real estate industries is also weakening, but measurably less so. High-technology confidence, which had been holding up well through mid-February, has declined sharply since then. Manufacturing confidence has held up better, particularly among North American manufacturers due to the weaker U.S. dollar. European manufacturers' confidence level is down sharply as the much stronger Euro (it is up more than 20% during the past year) is taking a toll.

What does all this tell us? Not much investment action for economic development as long as this view holds. It also says that the Bush Administration should seriously re-consider its options in dealing with Iraq. We have heard many estimates of what a war with Iraq would cost us. None of those estimates have considered the cost of "lost opportunities" that have been created by the high level of risk and uncertainty created during this period of waiting for war. I believe the numbers would be staggering.

What is the terrorist's biggest weapon? It's fear! What is the single biggest issue eroding our economic strength? It's fear! Until we dispel the high level of fear and uncertainty that exists in the world today, the economy will continue to gasp for air and local economies will continue to sink. It's about time that some of us said what's really on our minds. I hope you will take that opportunity. Let's get over this Iraq thing and get back to living.