Wednesday, 8 August 2018

Here's a revolutionary idea

There's an ongoing barney on social and mainstream media about what the latest poor numbers for business confidence might or might not mean, and, in that unappealing Kiwi way, who's to blame. The truth is, we're all reduced to guessing what goes through the minds of the people who fill out the survey forms and bung them back to the ANZ and the NZIER.

My conjecture - an upmarket way of saying 'sort-of-informed guess' - is that it's actually a mix of several things. There's probably an element of party politics in it, though as I said the other day, it looked to me as if the business community had got past the toys-out-of-cots stage. There's probably an element (beyond partisan) where they've looked at government policies and think they're bad news (irrespective of who introduced them). There's certainly concern about pressures on profitability, where there's pretty obvious evidence of costs pressures that aren't easy to pass on to consumers.

But do I really know? Does anyone?

So here's my revolutionary idea. Why don't ANZ or the NZIER ask, what's bugging you?

And here's the template. It's from NAB's latest quarterly survey of Australian businesses.

That's not hard, is it? You could ask the same questions here, word for word, and you'd be left with as clear an answer as the Aussie survey shows.

Just before I let go of this business confidence thing, could I say to all those talking up and talking down the 'confidence' figures, confidence readings are kinda interesting in their own right, but you're both paying them far too much importance. The links between 'confidence' and actual business outcomes aren't always that strong.

But don't extrapolate from that and say, business surveys are airy fairy indicators of nothing in particular. It is - and you can't say this terribly often in economics - beyond reasonable question that some of the measures in these surveys, particularly the ones related to firms' own prospects, have very strong links to reality. You might think a simple 'getting better/getting worse' question isn't going to get you very far. But it often will, which is why even official statistical agencies run them. 

Here, just to belabour the point, are the latest results from the French statisticians.

And to belabour it into the ground, here is the link between Aussie GDP and the 'Performance of services index' compiled by the Australian Industry Group, which is again based on the balance of better/worse answers.

And, finally, here at home here's how a combo of some of the business and consumer measures in the ANZ business surveys track against our GDP (it's a graph in the latest one). It's a pretty good relationship. It helps too that it is timely, and a leading indicator of what's down the track (the graph shows a five month lead between changes in the indicator and subsequent changes in GDP).

So for all those knocking business surveys because it suits them tactically - give over. These are useful, cheap, timely and while not every bit of them is always telling you useful stuff, in parts and in combo they give reliable readings on where we are and where we're going. If the evolution of the economy, good or bad, is giving you political conniptions, don't shoot the messengers.

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