Confidence trick?

The state of the economy is almost perfectly highlighted on SmartCompany today.

On the one hand, we’ve got a story about rising business confidence and a story about soaring expectations around profits and sales.

On the other hand we’ve got two stories about companies that have fallen into administration from two very different sectors – a mining services company and a car parking companies.

So while the so-called green shoot of recovery are becoming more plentiful by the day, and businesses and consumers are upbeat again, smaller companies are still struggling with cashflow issues and falling business investment.

NAB chief economist Alan Oster points out today that his own bank’s measure of business confidence may be painting a slightly too-rosy picture of the economy.

Confidence and forward orders may be rising in the previously-struggling sectors of manufacturing and construction, but Oster says this is probably because of the Government’s stimulus programs, including its infrastructure spending, its school repair program and its enlarged first home owners grants.

What happens when the boost from the stimulus measures fades? Oster says that’s already happening in the wholesale and retail sector, where conditions are starting to deteriorate as the impact of the Government’s cash handouts fades.

The latest insolvency figures from the Australian Securities and Investment Commission would also suggest we’re yet to hit the really rough patch of company collapses in the SME sector. The number of companies going into insolvency increased by 7% in June to 812, but this is a long way from the recent peak in March when 1,095 companies went to the wall.

The insolvency experts that SmartCompany talks to are still bracing for the collapses to kick in and say the banks and the ATO have taken a reasonably lenient approach to struggling firms during this downturn. The experts say that’s unlikely to last.

What does this mean for smart companies? Caution remains the watchword.

While it’s time to start ramping up your sales and marketing efforts to take advantage of the optimism, this is not the time to drop your fanatical obsession with cashflow, debt reduction and cost control.