In addition to the adversity and financial strains suffered by firms during this period of economic weakness, there exists significant uncertainty on many fronts. As mentioned in the last post, many businesses would find any further economic weakness to pose a formidable challenge. Although economist forecasts are predicting a weak economic recovery from here, economic forecasts have proven less than accurate the last couple of years. Furthermore, it could prove especially difficult to predict how any one company’s demand would be specifically impacted by further economic weakness.
In addition to the uncertainty over future economic conditions, there is a broad array of factors and issues that create uncertainty. Some of these factors and issues have to do with proposed legislation, such as the environmental legislation, health care reform, various financial reform provisions, and other possible legislative acts. All of these issues pose a lot of questions right now, as none are finalized yet each hold the potential for increased costs as well as changes in “the ways things are done.”
In addition to these legislative acts, there are probable increases in taxes, as well as changes in tax methods forthcoming. Again, both the financial impact as well as the inherent change create uncertainty.
Cumulatively, this high level of uncertainty both in future economic conditions as well as legistlative and other changes, appears to be one filled with potential challenges and increased costs. Even if the economy follows the economist consensus of a gradual weak, but sustained recovery, these economic conditions could prove challenging for many firms, especially those already financially impaired.
This uncertainty factor is highly significant with regard to companies’ hiring, or lack thereof, as further discussed in the next post.
Part V to follow…
SPX at 979.62 as this post is written