I understand how businesses can have cold feet about injecting cash in their respective companies after the finance implosion sent large sectors of the economy (i.e. real estate), as well as consumer confidence, into a tailspin. But what are some of the indicators that corporate America and investors like hedge funds and private equity managers look toward in helping guide their decisions about investing some of their money, thereby helping to pave the way toward a recovery?
This is an interesting question, as it really asks about how two different creatures see the world. Both Corporate America (selling products and services) and Wall St. (making money on money) may breathe air, have leathery skin, and eat insects, but one is an amphibian and the other is a reptile, and this is the reason each will look to something different for signs of economic recovery.
In order for Corporate America to warm up to spending on jobs, it will have to have a sense that the economic recovery is stable and sustainable. It has to be confident that when it does move into hiring for the long term, it will not have to turn around and release people in the short term. Of course, some important indicators are Chinese and European economic data, U.S. manufacturing data, consumer confidence, consumer spending, and retail sales data, but I suspect of greater importance to the titans of business are the leading indicators they pull from their marketing data, not the lagging indicators mentioned. Projections about consumer and corporate spending, customer attitudes (confidence), and discretionary income in target markets are examples. Making money for shareholders means growing the business, and that means understanding and caring about the customer’s need and desires, whether it is an individual or another business.
On the other hand, Wall St. sells product and services, true, but they all revolve around investing or trading markets for money. Customer attitudes matter little. What does matter is market movement, and the ability to predict which way it will go. And here is the key difference. Generally, Wall St. does not care which way the market goes. Up or down, it can make money, so signs, or lack thereof, of economic recovery only matter in defining market direction. True, everyone’s bias is toward a healthy, growing, economy, which means healthy growing markets (rising equities), but in the end, Wall St unleashes its money (to varying degrees) in all economic conditions, whereas Corporate America unleashes its money when it is confident about economic growth.
I understand that the above is a sweeping generalization about two distinct enterprises. Each breaks down into a myriad of different aspects that define the “business” and its concerns, but since both general enterprises control such a high percentage of money in our economic system, the only way to address the question here is to generalize. For me, then, one important “indicator” to watch is business confidence, and that is seen in a multitude of business surveys. Another is the health of small business because, as we all know, small business in America hires much of the American workforce, and since small business lacks the resources of Corporate America, customer attitudes and market needs add so much more to the decision of whether to invest in their business.
Trade in the day; invest in your life …
