This is one of those times when you need a guide through the maze. The euro zone crisis is playing itself out, amid warnings from the likes of Christine Lagarde, managing director of the International Monetary Fund, that the world’s “collective future” depends on the ability of European politicians to get us out of the quagmire. The risk, she and others have said, is of a downward spiral.
It is not hard to find other examples of deeply gloomy punditry. In Britain, following figures that showed gross domestic product down by 0.2% in the final quarter of 2011, the fear is that the economy is on the brink of the dreaded double-dip. Think tanks warn that unless the government changes course the economy will remain locked in the longest recession since the 1930s.
Something else, however, is happening, which presents a rather different picture. Stock markets have had a great start to 2012. The FTSE 100 has risen to its highest level since August, when fears about the euro and a new banking meltdown struck.
Shares in America have been doing even better, with the Dow Jones industrial average at its highest since May 2008 – before the worst of the global financial crisis – and the technology-heavy Nasdaq index at its highest for 11 years.
Are the markets mad to ignore the warnings, or do they have a better judgment on the dangers? My sense of it is that the markets have come back from the brink because things look better than they did a few months ago, certainly in the eurozone where large-scale assistance to the banking system by the European Central Bank has helped. More particularly, growth in America and China, the world’s two biggest economies, has exceeded expectations.
So why is there still such caution away from the markets? Let me offer an interpretation. We know consumers are badly squeezed by high inflation – real incomes fell more in 2011 than in any other post-war year – hence the fact that consumer spending is more depressed at this stage in the cycle than in any previous recovery in the modern era.
But there is a similar caution affecting businesses. I used to regard the skip index, based on the number of builders’ skips in my street, as an invaluable guide to what was happening in the economy. It still is quite useful and is currently pointing to weak growth (one skip in the street).
There is another measure I am thinking of developing. One of my sidelines is to speak, chair or act as a panellist at conferences. There are fallow periods and there are busy periods, even now.
One thing I have noticed, however, is the number of times these days a query about a date comes in, which gets duly pencilled into the diary, only for a few days later another call lets me know that the organisers have decided to postpone for now, until some of the uncertainty lifts. I am not, I should stress, talking about Richmond Events here.
It is only a snapshot but I think it tells us something about what I would call the “I’ll think about it” economy. If things are uncertain, there is always an excuse to delay, whether it is a conference, a new investment project, an overseas expansion or a store opening. Waiting may seem like the prudent thing to do.
The problem is, of course, that if everybody waits, nothing ever happens and the recovery remains becalmed. The hope has to be that this is not the case, and that business decision-makers take their cue from exuberant stock markets, rather than the gloomy warnings from the experts.