Recession in retreat
By Michael Pascoe | smh.com.au | 28 August
The optimist looks at the glass and says it's half full; the pessimist says it's half empty; the CFO says: ''You have a glass twice as big as you need, downsize!''
Chief financial officers are like that. And when there's an economic slowdown, they tend to take control of corporate Australia, ordering downsizing, delaying investment, cutting advertising and marketing budgets, killing new programs.
When CEOs can't see a way of improving the bottom line by selling more stuff or by increasing margins, they tend to hand over to CFOs to hold or at least minimise damage to the bottom line by cutting costs. That was the way it was in the early 1990s in the wake of recession and, as the Global Financial Crisis hit, the CFOs were rubbing their hands in expectation of being in charge again.
Today the CFOs officially surrendered that ambition. The white flag was waved by the Australian Bureau of Statistics survey of expected new capital expenditure.
And in the process, they buried what little there has been of the Australian recession.
Investment surprise
When Wayne Swan was putting his budget together in May, the biggest impediment to the economic rescue job the Government and RBA were undertaking was the dive in business investment.
You could stuff as much cash as you liked into consumers' pockets and cut interest rates to zero, but until business came to the party with investment, you were only applying Band-Aids with limited staying power.
The Treasury forecast business investment would fall by 18.5 per cent in 2009-10 - and that was the main reason unemployment was forecast to peak at 8.5 per cent. Just three months later and those Treasury forecasts have been thrown out the window.
On the basis of today's numbers, there's every chance ANZ CEO Mike Smith will prove to be the country's best labor market forecaster with his prediction that unemployment will peak below 7 per cent.
Big revision
The key part of today's figures is the upwards revision of capex that has occurred between ''Estimate 2'' and ''Estimate 3''. In English, when the ABS looked into the minds of the nation's CFOs back in April and May, when the world was a very gloomy place, the chief beancounters thought they could limit capex to $78.5 billion in 2009-10.
When the ABS checked again over the last month or so, the CFOs had loosened their purse strings to the extent of $90.6 billion - a jump of 15.4 per cent. That expected investment is still down about 10 per cent on 2008-09, but the big spend in the last financial year should be kept in perspective - it was up nearly 17 per cent on the previous year which itself was no laggard.
So if the present estimates hold good (and they do swing around as the year progresses, sometimes up, sometimes down), we'll be enjoying a remarkably strong economy measured on any sort of historical basis.
What's particularly encouraging about these latest estimates is that the CFOs are feeling looser across all industry sectors - everyone of them enjoyed an upward revision from the last survey, led by the mining sector with a whopping 17.7%.
Stronger for longer, afterall
As your humble contributing editor has been writing since he landed this gig, the commodity boom hasn't ended - only the ridiculous bubble on the top of it was pricked. People have been blinded by the failure of some headline-grabbing bubble projects and haven't looked through to the massive continuing investment in the main game.
Gorgon is just the latest example on top of the billions BHP, Rio and the iron ore wannabes are pouring in. The queue of coal carriers off Newcastle is back to being ridiculous. And where capital expenditure flows, other business spending follows.
Somewhere, someone in an advertising department has just put forward a new campaign idea and it wasn't knocked back. There's a CIO dusting off a proposal to buy new software. There's an HR manager reviewing the list of not-quite-successful applicants for the last job. And so it goes.
Sometimes the economy at work is indeed a beautiful thing to behold. There remain reasons for healthy caution - I have little faith in the American ''green shoots'' - but with the CFOs back in their box, put there by resurgent business confidence on the back of consumer confidence, the Doomsday brigade have to look well beyond Australia to find comfort.
Of course you can't keep a good curmudgeon down - just watch the pleasure they'll take in forecasting higher interest rates. But in this context, even rising rates can be seen as good news - they will be the sign of a healthy economy.
Disclosure: Some of Michael Pascoe's best friends are CFOs.
First published by Smh.com.au on August 28 2009
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