Are We Living in a Fear Economy?

Many companies are still not hiring despite many significant gains in the economic outlook for US markets. To use an example quoted by CNN, Intel announced a ‘better than ever’ quarter for Q2 2010. In fact, positive financial reports can even been found across the world, including the hardest hit global banks.

UBS brought in a net profit of 2bn Swiss francs ($1.9bn; £1.2bn) in Q2 2010. While Deutsch Bank were just behind with a second-quarter net profit of 1.2bn euros ($1.56bn; £1bn). Pfizer, the world’s biggest drug maker also published today higher-than-expected earnings of $2.28 bn in the same quarter. Yet net job numbers in the US are up just 1% from the height of the recession last year.

Too much caution?

Albert Hiribarrondo, Partner and President of IMD International and SIRCA Executive Search recently outlined that, ‘Clients are still not keen on hiring and have postponed several executive searches (with a hiring freeze of more than 12 months in financial services/banking industry).’ With the main reason cited as lack of confidence in the markets. Clearly a cautious approach to budgets is essential, but organizations must begin planning for the future.

As Mario Ceretti, Regional Director of Southern Europe, TRANSEARCH International recently outlined, it is the forward thinking companies that are hiring - not only to improve the present but also to ensure a stable recovery.

Thus, organizations must begin to lead, not follow. With jolts in the market becoming the norm (some defying explanation), organizations cannot wait for a complete stabilization that may never occur. If we continue to stall hiring for new executive jobs, a full recovery will be further delayed and the vicious circle will continue. After all it is innovative executive talent that will help organizations navigate beyond current economic instability.

Executive confidence

A recent uptick in positive 2010 Q2 results in the US has been reflected by an increased executive confidence in improving market conditions. As KPMG Global found in a recent survey, 73 percent of US Manufacturing executives expect improved business activity over the next 12 months and that hiring will match this increased production. In contrast, explained in terms of the continual bad news surrounding failing national economies, executives in Europe are expecting conditions to stagnate or become worse in the next 12 months.

However, we should be cautious of surveys in the current climate. As Mark A. Goodburn, Vice Chairman and Head of Advisory for KPMG LLP points out, “positive mood swings one day can turn sour the next, depending on the day's economic news”. For example, the KPMG study reported that confidence in BRIC counties for a strong recovery had fallen since October last year. However, if you look at manufacturing capacity in markets such as Brazil, with demand for executives increasing by up to 57% in 2010 and production increases in most sectors, the correlation between executive confidence and market reality does not seem to be consistent.

Then current swings in confidence, not necessarily matching reality are not conducive to seriously assessing future talent needs in tandem with earnings forecasts.

To lead or to follow?

There is no doubt that financial markets and economies worldwide are unstable. However, if organizations do not start leading the markets and hiring again, can we really expect a stable recovery? And when will we stop living in fear of the markets?

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