What’s with the grumpy mood?
This gradual but prolonged economic slowdown is at risk of ceasing to be about the data and starting to become about the people.
Sharon Zollner ANZ chief economist
Business confidence — which keeps sinking — is at odds with relatively robust fundamentals of the economy. What gives?
Are confidence surveys a harbinger of recessionary doom?
Or are they a political football powered by the anti-Government bias of business leaders?
There’s almost certainly a bit of political feeling in top-line confidence numbers.
Research by the New Zealand Institute of Economic Research (NZIER) — which has its Quarterly Survey of Business opinion due today — shows that, historically, confidence levels are lower when Labour Governments are in power.
The September ANZ Business Outlook Survey saw headline confidence fall two points to the lowest level since April 2008.
But it’s not top-line business confidence that is worrying economists. It is firms’ assessment of their own immediate outlook.
These are typically a bit more upbeat. And they also correlate more accurately with real data.
There are a number of strong correlations within the survey, ANZ chief economist Sharon Zollner argues.
These included employment intentions with employment, investment intentions with investment and own activity with GDP.
In the latest ANZ survey, firms’ expectations for their own activity over the year ahead fell one point, the fourth fall in a row, and the lowest read since April 2009.
Employment intentions saw a onepoint gain but remain at a historically low level.
A net 40 per cent of firms said they expect it to be tougher to get credit, up 1 per cent.
Export intentions rose 3 points to a net 2 per cent of firms expecting exports to lift.
This was quite muted considering the size of the fall in the exchange rate, Zollner said.
So that’s not great, but also not a massive slump.
“The Reserve Bank will be disappointed that its unexpectedly large 50bp cut in the official cash rate last month does not appear to have had much impact on business’ sentiment or investment and employment intentions.”
Fundamentally the economy was still in good shape, she said.
“Commodity prices are still decent; population growth is positive; monetary conditions have eased. But the prolonged lack of confidence is starting to feed its way through the economy and is threatening the tight labour market.”
It’s important to put this survey in context.
Forces on the left and right of the political spectrum have tended to have difficulty doing that.
ANZ has been one of the gloomiest economic research units this year but it is not picking that New Zealand is heading for recession.
It currently sees growth bottoming out at about 1.9 per cent next year and although there may be a risk of further downward revision most economists see higher growth than that.
One positive note in the latest survey was that construction sector employment intentions had bounced back, Zollner noted.
Construction accounts for 9 per cent of employment.
“But, there is still no sector of the economy that reports on net that it is planning on hiring more staff — that hasn’t happened since 2009,” Zollner said.
“And the services sector, which employs a hefty 74 per cent of people across the economy, is now also capitulating. This gradual but prolonged economic slowdown is at risk of ceasing to be about the data and starting to become about the people.”
ASB economist Mark Smith warns that it’s not just business that is gloomy.
“Consumer sentiment is at fouryear lows, weighed by softening views on the NZ short-term and longer-term economic outlook,” Smith notes.
“Domestic catalysts (including possible business unease over government policy direction) look to have contributed to the grumpy mood within the business community.”
But that isn’t unique to New Zealand, with business outlook in Australia’s National Australia Bank survey now at five-year lows.
The NZIER will today publish its Quarterly Survey of Business Opinion.