The latest quarterly Westpac McDermott Miller survey of consumer confidence came out this morning, and much of it was pretty positive. But there was one chart in particular that I was keen to see, and it was that mysteriously saggy 'outlook in five years' time' one that's been puzzling me for a while. Here's the latest reading.
The odd thing is that, after a surge of relief in late 2009 and early 2010 that the worst of the GFC had passed by, people in New Zealand have steadily turned less optimistic about New Zealand's future prospects, despite our recent strong business cycle.
And it's not an oddity of the Westpac McDermott Miller survey: exactly the same pattern shows up in the ANZ Roy Morgan consumer confidence survey.
So why this steady loss of optimism?
That latest bounce in the Westpac reading (and the smaller lift in the latest ANZ one) suggest part of what's going on: it looks as if both measures are picking up the recent improvement in dairy prices. As Westpac commented, "Despite picking up, the number of households expecting favourable economic conditions in five years’ time remains at some of the lowest levels we’ve seen in decades, with those in rural areas especially downbeat...Recently, we’ve seen global prices for dairy starting to
improve, and we’ll be watching to see if confidence in rural regions also starts to lift over the coming months".
International trading conditions are clearly one of the drivers of these measures: they can also be seen in that dip in the ANZ survey readings in mid 2015, which coincided with volatility in world financial markets when it seemed the global economy might be running out of oomph (people at the time were worried about China in particular). Evidently the people surveyed think that (some recent improvement in dairy prices excepted) the world economic outlook is not crash hot at the moment, which looks to be a realistic assessment: every recent major review of the world economy has found it is growing more slowly than usual - as shown for example in this indicator of the world economy from J P Morgan/Markit - and that the balance of risks is tilted to the downside.
There are also probably a couple of other things feeding into the downbeat mood. One is expensive house prices. As the ANZ commented, "Higher house prices aren’t a win for all. Confidence in the 25-34 year bracket (first home buyer heartland) continues to see-saw: as house price expectations rise, their confidence in current conditions falls and vice versa", and I wouldn't be the least bit surprised if very expensive housing isn't feeding into lower longer-term confidence as well.
I wondered if politics also had something to do with it, but neither the ANZ nor the Westpac surveys have questions obviously linked to political perceptions. So I turned to the separate Roy Morgan research which asks people, "Generally speaking, do you feel that things in NZ are heading in the right direction or would you say things are seriously heading in the wrong direction?".
There's a rough and ready fit: in the ANZ, Westpac and Roy Morgan graphs, there's been a rise over 2012-14 and slide over the past couple of years. People are still, on balance, happy with where the country is being taken, but not as happy as they were. What this says I'm not sure: perhaps people feel that somewhere over the next couple of elections, a safe pair of hands will be replaced by something less predictable? Or are they becoming progressively disenchanted with steady as you go and don't frighten the horses?
In sum, that slide in optimism, which seems at odds with the current strong state of the business cycle, can, I reckon, be unpicked - a realistically downbeat assessment of the world economy, a close concern with trends in commodity prices, angst over the dream of home ownership, and, for one still unclear reason or another, some modest loss of confidence in political direction.