Confidence trick?

Today’s “significant” fall in business confidence raises a few concerns about the progress of the recovery. But don’t be spooked.

Have things suddenly turned gloomy out there in business land?

Today’s business confidence figures from the National Australia Bank showed what chief economist Alan Oster described as a “significant” fall in sentiment from 19 points to eight points and a suggestion from Oster that the RBA’s three consecutive rate rises might have taken a bit of the wind out of the recovery.

Now, it must be pointed out that business confidence measures can be pretty volatile, and as we have highlighted for a while now, the extraordinary bounce in confidence we saw last year was not matched by a big jump in actual business conditions.

While we were all feeling better, in many businesses the registers weren’t ringing yet.

Oster puts the confidence drop down to the RBA’s three consecutive rate rises (with another to come this afternoon, according to most economists) and the strong Australian dollar, which would be weighing heavily on exporters.

So should entrepreneurs be worried? Is the recovery suddenly running out of steam?

No. As Oster points out, confidence remains at above-average levels and business conditions were stable during the month of December.

There is no evidence of companies de-stocking, forward orders held up well and there is a clear move to rehiring workers and increasing hours.

Things are definitely looking up, but we must remember this is still a recovering economy. The pain of last year is still fresh in entrepreneurs’ minds and talking to business owners in the last few days I’ve noticed a real sense of caution and a determination not to forget some of the lessons learned in the last 18 months.

And that’s not a bad thing. As we get back into full gear, our companies will be stronger, smarter and prepared for sustainable growth.