Latest Word on Business Confidence

Business confidence turned up again as October came to a close. While confidence is still below its late summer high, the 4-week moving average is up some 40% for where it was at the start of the year and more than double where it was at its nadir in the lead up to the Iraq war.

North American businesses have experienced the most substantial recent improvement in confidence. High-tech producers in particular have become more optimistic, with confidence among these companies hitting another record high last week. Sales of IT equipment and software are improving. Manufacturers and transportation companies also remain notably positive. Stronger sales and a weaker U.S. dollar vis-à-vis the euro are lifting spirits. Transportation companies are benefiting from the rebound in manufacturing, which drives the demand for trucking, rail, sea and air freight companies.

Sales and pricing are improving. While weak sales remain businesses primary concern, only one-third now say that this is their biggest problem. Early in their year, well over one-half identified weak sales as their most pressing problem. Pricing concerns have also faded, with less than 30% saying that it is their most significant worry. Regulatory and legal issues are rising as a concern, with some 25% of respondents saying that it is their most significant problem.

Confidence remains weakest in Europe and Latin America. European manufacturers are especially dark, as they are being hit by the appreciating euro. Healthcare companies throughout the world are least positive, as discretionary healthcare spending in North America has softened and the pharmaceutical industry is struggling with a number of key drugs coming off patent. North American real estate companies have become recently less positive as well. This likely reflects somewhat higher interest rates, at least compared to where they were this summer.

Despite the improvement in sales and pricing, businesses remain cautious regarding their hiring. Job growth is vital to the sustainability of the recent economic revival. Without more meaningful job growth, the recent bounce in the economy will fade early next year once the boost provided by massive fiscal and monetary stimulus wanes.

Source: Economy.com