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Business confidence verses business certainty

Written By: - Date published: 11:13 am, August 31st, 2018 - 37 comments
Categories: articles, business, capitalism, Donald Trump, Economy, Free Trade, jacinda ardern, john key, labour, Media, Unions, wages - Tags: ,

Lately the news has been all doom and gloom about business confidence.

The gloom does not match the data. Rather it seems to be a fit of pique by a sector that is historically supportive of National and resentful that power has been taken away from them. The resent is peaking because of the “threat” of a living wage being implemented and because of an attempt to modestly walk back the anti union policies of the last Government.  If these really are a threat to our business sector we are in big trouble.

But falling business confidence is a phenomenon and something the Government is aware of. It is the reason that Jacinda Ardern spoke recently to the business sector.

She was more gentle with her analysis and rather than criticising business for taking an ideological position she said that the lack of confidence was due to uncertainty.  In her speech she said this:

When you line up business confidence with key economic performance measures over the last two governments there appears to be an inverse relationship between business confidence and the actual performance of the economy.

For instance, average business confidence scores under the Clark/Cullen Government were much lower than the Key/English Government, despite Clark and Cullen delivering higher average growth, lower unemployment, lower debt, larger surpluses and stronger wage growth than their successors.

We appear to have inherited a similar conundrum, we’ve run a strong surplus, have the best net international investment position ever recorded, stable and low interest rates forecast for some time which ought to spur investment and the lowest unemployment rate in a decade.

That then begs the question, if it’s not the overall economic indicators that is driving these figures, then what is? I have discussed this question with both business leaders and representatives, colleagues and officials. The answers I have had back are almost as diverse as the groups I have asked.

Some of those issues I will touch on today, but the overall sense I have is that it would be wrong to over simplify this survey and just call it out as being about party politics, just as it would be wrong to ignore it. It is telling us something, and that something is probably most accurately captured not by confidence, but certainty.

She is right but it is uncertainty created by negative framing and talking down of the economy.  Shades of the last Labour Government’s winter of discontent.

And there has been some scathing commentary from Mitch Harris at Radiolive about confidence surveys.

Another meaningless Business Confidence Survey has been released by ANZ Bank.

These surveys are used to beat up the Government, and they can become self-fulfilling prophecies. But what are they?

They are really two surveys. They ask business managers and owners what they think of their own company’s prospects, and they ask them how they think the overall economy will perform. Most of the recipients say their own business is doing okay, but the wider economy is going to hell in a handcart.

What would they especially know about the wider economy? Running a company is not the same as running an economy. What the survey is really telling us is that a sample of mainly National voters don’t like the Government.

Most of these so-called business leaders are just bureaucrats who have climbed the greasy pole in a large corporate.

ANZ plays the bad cop; with Sir John Key as its chairperson, it constantly releases these irrelevant surveys as some sort of economic canary in the coalmine, telling us that these exceptionally gifted business people are warning us that the Government has got it all wrong.

With Kiwibuild and an intensive housing construction boom in Auckland getting ready to start the lack of confidence seems to be misplaced.  And Herald business commentator, Brian Fallow, who is hardly a left winger, agrees.  From his article in this morning’s Herald:

Whether or not it works as outreach to a grumpy business community, the Prime Minister’s speech on Tuesday deserves to be read.

She makes some fair points.

The first is that the despondent state of business sentiment is really not warranted by the economic indicators.

Jacinda Ardern did not labour the point in a get-a-grip sort of way. So let me.

The cycle is getting long in the tooth and the best of it is behind us but the economy is hardly falling off a cliff.

Skill shortages and other capacity constraints are biting in some sectors. Profit margins are under pressure, the labour market is tightening and the migration cycle peaked a year ago.

But the population and workforce gain from that source is still very high by historical standards and the Government is working on plans for regional skill shortage lists, recognising the shortcomings of national ones.

For consumer-facing businesses, the unhealthy combination of a wealth effect from runaway house price inflation and a negative household saving rate is being replaced, at least partly, by some actual cash income growth.

And not just from the families package which kicked in two months ago. The number of people employed grew 3.7 per cent in the year ended June and their collective weekly gross earnings were up 5.5 per cent.

Some export commodity prices may be wobbling, but the overall terms of trade — the ratio of export to import prices — is at the most favourable level on record, boosting national income. And the exchange rate has moved in an exporter-friendly direction.

So rather than relying on trickle down, rampant immigration and run away house prices the Government is trying to affect the economy in a more far sighted way.  And some things such as Donald Trump’s wrecking of world trade is beyond the means even of Jacinda Ardern to control, talented though she may be.

So there is nothing for businesses to worry about.  Unless your business model relies on rampant immigration and run away house prices.

37 comments on “Business confidence verses business certainty”

  1. indiana 1

    No matter how Labour tries to sugar coat it, facts like this keep slapping them in the face:

    “Documents released by Treasury on Thursday reveal the agency repeatedly warned the Government against allowing HNZ to borrow money this way in the lead-up to the Budget, suggesting instead that the money should come out of normal Crown debt.”

    https://www.stuff.co.nz/national/politics/106704499/billions-borrowed-for-new-state-homes-against-treasury-advice

    Not surprising that business perceivably goes against the rhetoric of:

    “For instance, average business confidence scores under the Clark/Cullen Government were much lower than the Key/English Government, despite Clark and Cullen delivering higher average growth, lower unemployment, lower debt, larger surpluses and stronger wage growth than their successors.”

    • mickysavage 1.1

      They warned the last Government too about this activity! Did you read where they said:

      “The advice echoed similar words given by Treasury when the National-led Government decided to allow Housing New Zealand to borrow over $1b in the last Budget.”

      Although I agree this should be on the crown’s balance sheet because it is cheaper. And the monetary policy rules should be changed.

    • Ad 1.2

      Has nothing to do with the business confidence survey.

  2. Wayne 2

    I was asked about this issue on RNZ this morning. So I did a bit of research prior to the interview, rather than speaking in generalities.

    To take the Auckland construction industry. Cement deliveries nationwide are down 5%, more in Auckland. While there are many cranes in the CBD (around 35) many of these are on projects that are coming to an end, without matching new projects. That is causing a lot of anxiety.

    Labour has talked a lot about new projects, but many of these are years from starting. Planning and consenting for light rail will take at least 18 months, probably more. To take the analogy I used on radio, instead of turning the tanker while it is underway, what is happening is the tanker is slowing, then being turned before it speeds up again.

    Business confidence is all about the future. A large number of businesses are looking at a real dip in the next 12 to 18 months, before Labour’s new plans kick in.

    That is why confidence is down. That is why many in the construction workforce are already going to Australia. It is why unemployment is likely to go up again in the next quarter.

    As Michael Barnett recently said, Labour needs to get some shovel ready projects going now. Sure these are largely from the previous govt, which Labour has canned, but there is a 12 to 18 month gap that has to be filled. Mostly they are roading and related type projects in the south and east of Auckland. While they may not be exactly Labour’s priorities, they will be be useful in freeing up traffic, especially in logistics and freight.

    And they will boost business confidence. Labour will be seen to be doing, and not just talking.

    • mickysavage 2.1

      Cement is just one indicator. It may mean that a couple of major road projects have finished.

      What about building consents? These are up 28% on last year …

      https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12116219

      There will be lots of construction work happening. And Kiwibuild is in the pipeline.

    • Ad 2.2

      In construction and infrastructure that hole is exactly what we are facing.
      That has some pretty big employment effects while our public sector clients figure themselves out over the next year.

    • Pat 2.3

      The construction industry neednt worry about a 12 month lag in forward orders Wayne….it’ll take them longer than that in overruns and rework on the poor workmanship already completed

    • Blazer 2.4

      I heard your comments this morning.
      Hodgeson was more illuminating on the realities in the economy.
      The supertanker analogy is an old one and not particularly helpful.

      ANZ economist Sharon Zollner says 2/3rds of growth has been down to immigration.
      The tradeable sector has been quite stagnant for some years now as GDP growth has relied on property inflation and immigration .

      ‘Business confidence is all about the future. A large number of businesses are looking at a real dip in the next 12 to 18 months, before Labour’s new plans kick in.’

      If businessmen could pick the future 12-18months out they wouldn’t need to rely on the old boy network of cushy directorships to earn money,they could just trade futures.

      • Dennis Frank 2.4.1

        You got it right there. This is the crux of the issue: “ANZ economist Sharon Zollner says 2/3rds of growth has been down to immigration. The tradeable sector has been quite stagnant for some years now as GDP growth has relied on property inflation and immigration.”

        Throughout his entire tenure as PM, it was obvious Key was faking it. The most credit he deserves was for keeping the ship steady post-gfc.

        Importing lots of foreigners to create the illusion of economic growth was nothing more than the desperation of a drug addict. If neoliberalism hadn’t become dysfunctional, they wouldn’t have been any desperation. But instead of facing reality and telling the truth, the cheerleaders of capitalism have taken refuge in evasion & denial. Spinelessness isn’t the solution to the problem.

  3. Ad 3

    It’s vital that the government can demonstrate that it has instigated projects that are delivering results prior to the next election.

    Minister Twyford clearly knows that.

    I get the impression Minister Jones does as well.

    The PM can (mildly) complain about the dissonance between boardroom mood and reality, but much of the uncertainty is of her own making.

    – Few of these 170+ working groups have specific outcomes or finishing dates, and even fewer within this term

    – The business group she is clearly forming on the fly has little chance of being a true alternative node of business advice and leadership

    – There is no tax plan other than … something next term

    – There is no clear plan for the economy, other than some exceedingly high level bromides from the Minister of Finance, … speaking of which…

    – Her Minister of Finance is missing in action. Almost totally. WTF is the PM having to spend her political capital on a business audience? That is the Min Finance’s job.

    The PM should make Roberston accountable for bringing the business community around to the government programme.

    • mac1 3.1

      “– Her Minister of Finance is missing in action. Almost totally. WTF is the PM having to spend her political capital on a business audience? That is the Min Finance’s job.”

      Having the PM attend signals how important she sees that particular forum. The attendees would appreciate that.

      I recently attended the local Chamber of Commerce which had a lunch-time speech by the Minister of Finance?

      Missing in action? Nah. Just anti-government hyperbole, Ad.

      Robertson told the New Zealand Shareholders’ Association annual meeting in Auckland on Saturday. “As part of that process, we want to work on how we register the remaining million or so New Zealanders who aren’t in KiwiSaver,”

      Or the symbolism of Ardern speaking to the business advisory council meeting. One opinion leader says, “This week’s speech by the Prime Minister is a strong signal that the Government is listening. It is important for business to know that it has a voice, and that the Government is hearing it and responding.”

      Who said that? Kirk Hope, chief executive of BusinessNZ.

      He saw the symbolism of having PM involvement. Robertson was also there. He spoke later to the media on the meeting.

      https://www.radionz.co.nz/national/programmes/morningreport/audio/2018660132/finance-minister-hopeful-of-business-confidence-turnaround

      • Ad 3.1.1

        From the media coverage of major spending announcements, the Minister of Finance appears to be Phil Twyford.

        In any other government, the Minister of Finance is the second-highest profile politician in the country.

        I’m sure Robertson does speeches. Don’t doubt it. If Kirk Hope fell in a forest, no one noticed the noise.

        The business confidence survey is strong and consistent enough to show that Robertson’s appearances do not equate to the leadership required to make a difference in the business community.

        If Ardern has to spend this much political capital shoring up business, Roberston is not doing his job.

        • mac1 3.1.1.1

          Ad, (in a tired but resigned voice), who is the Minister of Housing? Which Minister makes housing announcements? It is a recognised fact that Minsters can spend money in their portfolio areas.

          As for dismissal of the opinion writer for a major news organisation you dismiss him why? Because he dares to have an opinion which does not align with your bias?

          If you are sure that Robertson (do take note of the spelling!) makes speeches, why do you dismiss him as “missing in action”. I gave you a reference which showed he was well in the firing line, quite well-armed and taking care of the action.

          The business survey more reflects the politics of those surveyed rather than the reality of the NZ economy. Funny how people in surveys say they themselves are doing quite well thank you but the economy is doomed, “Doomed, I say, DOOMED!”

          • Ad 3.1.1.1.1

            Cheers I am aware of the Cabinet. Twyford is the person making all major announcements that are affecting the economy. Not Robertson. The budget was regrettably a long, long time ago in politics. It is Twyford not Robertson showing the leadership in economic intervention.

            Making a speech should not be confused with leading. You would know it if you saw it, as would the business community. If there was leadership, the Minister of Regional Economic Development would have know that the CE of Air NZ was going to lead the new government business group. He was totally blindsided and said so to the media on Friday.

            There’s no doom. There’s still plenty of strong fundamentals. A good government would show how to build on that.

            There are no stories in the MSM saying that this government has a clear plan for the economy. The mood polls reflect the government’s own policy incoherence.

            There are no stories in the MSM saying that there are outstanding new listings in the sharemarket, nor rises in productivity, nor decreases in youth unemployment, nor wage rises, nor increases in consumer spending, nor a tilting of investment from real estate to business, nor an accelerated shift away from bulk commodity exports … nor any coherent plan to address any of that.

            And if they did, you betcha that business survey would improve.

    • Hanswurst 3.2

      Ad, your comment appears to take as read the lines that the current government can meaningfully be said to have established 170+ enquiries over and above what would previously have been usual practice, and that the latter is an indication that the government is not implementing any sort of programme. I am well aware that you don’t actually think that either of these claims paints the full picture, but I do think that you may have lost sight of any substantive point about coherency of policy and message in the pursuit of playing Devil’s advocate. I also sometimes get the impression from your posts here that you think your Devil’s advocacy is a lot more provocative than it actually is.

      • mac1 3.2.1

        Hanswurst, with mustard! 🙂

      • Ad 3.2.2

        Nope, I genuinely think that – Twyford aside – this government is as incoherent as it looks. No one is able to give evidence that it is. Not you nor anyone.

        Your “impression” stems from an unwillingness to expect coherent greater than that which we have had for the last 9 years of government. Learn to expect more.

        No one outside of Wellington now believes this government has a shining singular purpose. Particularly not with the economy. That really is the role of Robertson.

        This primary intervention this week – again Twyford aside – was two all-weather horse racecourses and an incoherent business group with neither scope, purpose for the government, or membership.

        Keep dismissing the consistent mood-of-the-boardroom reports if you like. Nordmeyer’s government did similar, and lasted a term.

  4. Paul 4

    I wonder if this is the same survey that existed in the Bank some 17 years ago when I worked for ANZ. Basically the most junior smuck (me) got the job to complete it and send it to Head Office. Quite frankly I had no more idea of business confidence than any other person and just filled in some tick boxes and sent it off – job done. Maybe its changed and actual businesses are surveyed now – maybe not.

  5. Draco T Bastard 5

    What would they especially know about the wider economy? Running a company is not the same as running an economy.

    Interestingly enough, Paul Krugman made the same point back in 1996:

    College students who plan to go into business often major in economics, but few believe that they will end up using what they hear in the lecture hall. Those students understand a fundamental truth: What they learn in economics courses won’t help them run a business.

    The converse is also true: What people learn from running a business won’t help them formulate economic policy. A country is not a big corporation. The habits of mind that make a great business leader are not, in general, those that make a great economic analyst; an executive who has made $1 billion is rarely the right person to turn to for advice about a $6 trillion economy.

    Why should that be pointed out? After all, neither businesspeople nor economists are usually very good poets, but so what? Yet many people (not least successful business executives themselves) believe that someone who has made a personal fortune will know how to make an entire nation more prosperous. In fact, his or her advice is often disastrously misguided.

    That’s an interesting article as he goes on to say that foreign investment must result in a trade deficit. Our own trade deficits have been increasing ever since we allowed essentially unlimited FDI and yet the business people have been telling us that we need more.

    Business people do not understand economics.

    Most of these so-called business leaders are just bureaucrats who have climbed the greasy pole in a large corporate.

    QFT

    Most business people and other capitalists are about as entrepreneurial and innovative as a door nail.

    So rather than relying on trickle down, rampant immigration and run away house prices the Government is trying to affect the economy in a more far sighted way.

    I’ll believe that when they start dropping FTAs and start developing our own capabilities.

  6. Poission 6

    The parablr of the self-fulfilling prophecy.

    The parable tells us that public definitions of a situation (prophecies or predictions) become an integral part of the situation and thus affect subsequent developments. This is peculiar to human affairs. It is not found in the world of nature, untouched by human hands. Predictions of the return of Halley’s comet do not influence its orbit. But the rumoured insolvency of Millingville’s bank did affect the actual outcome. The prophecy of collapse led to its own fulfilment

    Business confidence falls householders start saving (instead of spending).

    164,316
    165,332
    166,836
    166,332
    167,001
    168,973
    169,595
    170,096
    171,530
    172,677

    (Billions of dollars since election)

    https://www.rbnz.govt.nz/statistics/s40-banks-liabilities-deposits-by-sector

  7. katipo 7

    Business confidence might be down because their million dollar+ CEO’s are realizing their worker-bee’s have had a guts-full of working longer hours with little to no pay increases.

  8. infused 8

    You guys need to wake up.

    These are lagging indicators.

    We’ve had our worst month in the last two years. It’s been in steady decline since June. We are posting a loss this month.

    Everything has stopped. No new customers, no orders of hardware.

    I was just speaking tonight with a software dev firm tonight who I’ve had a close relationship for 10 years, and this is the first month 4 big clients held back paying funds. He had to do the ring around to pay his staff.

    There are industries doing well, like construction. But many who are not.

    The end of this year is going to be crushing for many SMBs I imagine.

    • Hanswurst 8.1

      Ah well, in the absence of strong economic indicators to back up your concerns, maybe you’ll just have to accept that you and your friends are a bit s*** at business. Happens.

      • infused 8.1.1

        Yeah, been in business almost 15 years now, 150% growth last financial year. I’m not the one who’s shit.

        • Hanswurst 8.1.1.1

          Well, according to your own evidence just above, you’ve lost your mojo since June. Happens.

  9. RedBaronCV 9

    Business confidence index to be renamed the business sulk index?

    Still businesses that have been overdosing on the crack cocaine of growth fueled by immigration may be feeling a little poorly. Dud business models are going to fail as they should. And don’t forget the massive social & infrastructure cost that the taxpayer is stumping up for this immigration.

    But business should be celebrating wage and salary rises – more money outside the door means more money inside it as well

    So are the owners anticipating decreased profits in their own pocket or having nothing to invest in the business. If it’s just their own pockets hurting a little – sorry no sympathy and even less for the grossly inflated wages at the top of the tree.

  10. Jackel 10

    30 years of neoliberalism finally catching up with NZ. Hopefully the Ardern government can do something the other administrations couldn’t.

    https://www.poundsterlinglive.com/nzd/7615-nz-dollar-and-massive-debt-levels

  11. Jenny 11

    Why do we measure business confidence?

    Confidence is an internally felt emotion, like all emotions it is a subjective feeling.

    I mean how do you measure feelings?

    Subjective emotions are often, (but not always), engendered by external objective metrics, so why don’t we just identify and measure these external metrics instead?

    And if the government should pander to subjective emotions, should they just be pandering to one sector?

    Rising wages might cause feelings of lack of confidence in business, but feelings of confidence in workers.

    Falling house prices might engender growing feelings of confidence in first home buyers, but engender falling levels of confidence in bankers and businessmen.

    While we are talking about measuring subjective emotions….

    While we assiduously measure the subjective feelings of confidence of the business community, why don’t we measure the subjective feelings of confidence the public has in these business people?

    Wouldn’t this give us a better idea of how much subjective weight should be given to the tender feelings of business?

    If it is found that the public at large has no confidence in our business community, wouldn’t this be grounds to discount the feelings of confidence or lack thereof of business?

    Personally I think the whole matter of measuring feelings and emotions is idiotic, and government should stick to verifiable facts and figures.

  12. Dennis Frank 13

    Business confidence lows are more impressive elsewhere actually:
    https://www.bbc.com/news/world-latin-america-36319877

    You kinda get the impression inflation is a concern too: “The annual inflation rate reached 83,000% in July”. IMF is predicting the rate will reach a million per cent by the end of the year. A cup of coffee now costs 2,500,000 bolivars & one suspects the govt printing machine may be overheating spitting out the wee buggers. Since the economic crisis began in 2014, 7% of the population have fled the country. The fastest learners.

  13. hone 14

    cut paye to 3%, cut business tax to 6%.
    slash most of the government workers and mp’s, most of them are pigs at the trough.
    raise import tax.
    end all armed forces, make a defense force.
    end all work visas, as nzers can do these jobs.
    pretty sure kiwis can work on farms in gas stations, supermarkets etc.
    end the dole and start work programs.
    stop all global warming taxes and programs.
    and act like trump, act for nz first.
    we will have close to full employment, kiwis will spend more.
    oh and make socialism/Communism illegal.

  14. CHCOff 15

    Good to be bringing in Lobbying.

    The ultimate objective to be lead by the local economy, when our NZ export lead prosperity is lead by our NZ local economy, then that will be really something of the values that NZ mixes into the world arena.

    At the moment our local businesses seem to be balkanised, with what seems like centralised puppet actors like Fed Farmers parroting the dominant media complexes for their direction.

    Hopefully this govt. period can bring back in some more real world capitalism to the demand and supply organisation of the NZ local economy, in growing prosperous NZ quality of life values to lead our export lead prosperity for the NZ ‘brand’ if you like, of why other countries and their societies love the benefits of trading relationships with New Zealand identity.

    NZ1st!

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