Firms predict rising profits as consumer confidence rises
Published:Wednesday | July 13, 2011 | 12:00 AM
McPherse Thompson, Assistant Editor - Business
Economic optimism among Jamaican firms dipped for a second quarter, but businesses remained positive that their financial prospects and profit margins would improve in the year ahead.
However, consumer confidence rose during the same period because of favourable expectations for the economy and, by extension, their personal financial situations, the Jamaica Conference Board reported Tuesday.
The survey was undertaken by Market Research Services, and analysed and presented at the Wyndham Hotel, New Kingston by Professor Richard Curtin, head of the Survey Research Centre at the University of Michigan, United States.
The index of business confidence slipped to 117.5 in the latest survey, below the 124.5 recorded in the first quarter, but slightly above the 114 in the 2010 second quarter study.
Professor Curtin said the most likely interpretation for the latest result was that businesses had adjusted the pace of economic growth they expect during the year ahead. However, he said the data provided no evidence "that the small decline is an early warning sign of a downturn in positive economic expectation."
According to the survey report, there has been a veritable sea of change in opinion about the top problems facing the country. During the past decade, businesses universally cited crime and violence as the top problems facing the country, but in the latest survey those were mentioned by just about a third of firms, down from 80 per cent a year ago.
The more ordinary economic problems and perhaps the most challenging ones mentioned "have to do with jobs, incomes and prices, as well as government economic policies and the impact of the global economy," the report said.
Slightly fewer firms, 47 per cent, expect the economy to improve in the year ahead, eight per cent below the 55 per cent recorded during the first quarter this year, and also below the 52 per cent recorded in the corresponding period last year.
The strong pace of economic growth expected in the year ahead was due to factors such as more favourable government economic policies, falling interest rates as well as stronger prospects for improvement in tourism, mining and agriculture.
Improvement
Among all firms, 54 per cent expect improvements in their balance sheets in the year ahead due to rising profits and increasing demand, up from 43 per cent at the start of last year, but below the 66 per cent reported last quarter, as well as the 49 per cent a year ago.
But firms are not as bullish about investment plans going forward, with just 40 per cent planning to do so in the year ahead, a five per cent decrease from the last quarter survey. The decline was attributable to the lacklustre performance of businesses' return on investment undertaken during the past two years.
Just 16 per cent of businesses report that their profits in the past year were higher than that they originally anticipated.
Unlike the business index, consumer confidence rose in the second quarter to 116.8, the highest level since the close of 2008, up from 105.9 in the first quarter and also above last year's second quarter results of 102.1.
The survey report said the recent gains, despite being below levels recorded in 2006 to 2009, represented a solid improvement, notwithstanding expectations that difficult economic conditions, especially as it relates to employment, would persist.
"Importantly, consumers have become more upbeat because they believe the economy is on the road to recovery, even if the road is not free of all economic hazards and the speed limit on growth is quite low," it said.
Nearly all consumer respondents to the survey reported that jobs were scarce and hard to get, extending the bleak job assessment to a new record of 10 quarters.
The proportion of households expecting rising incomes was 39 per cent in the second quarter of 2011, up from 31 per cent in the first quarter this year, and the highest level in two years.
Consumers believe living standards would improve in the year ahead, despite widespread expectation of higher prices.
Professor Curtin said the most surprising aspect of the second quarter data was the strong growth in spending plans, with vacations anticipated by 36 per cent of respondents, the highest level in nearly two years.
Vehicle buying plans were voiced by 23 per cent of households, up from 15 per cent in the last two quarters, and the highest in more than two years. In the second quarter survey, 14 per cent of consumers held home buying plans, up from 10 per cent in the previous two quarters and also the highest level in two years.
Professor Curtin noted that declines in mortgage rates as well as interest rates on other loans would boost spending, but even with that help, buying plans seemed too high to be fully realised.
The conference board, the research and advisory arm of the Jamaica Chamber of Commerce, has been tracking business and consumer attitudes since 2001. The indices are based on answers to questions from a survey of 600 persons and 100 firms conducted for the period April to June 2011.