CTU economist shakes the confidence we place in confidence surveys

CTU economist Bill Rosenberg has pitched into the question of ‘business confidence’ and whether it is really falling.

Writing in his 100th CTU Economic Bulletin, he asks whether business confidence surveys are anything more than opinion polls among some chief executives about what they think of the Government of the day or to get their impressions (“which may not be any more accurate than yours or mine”) of where the economy is going?

Rosenberg acknowledges that business decision-makers need confidence when thinking about investing or hiring new staff, to decide if they can take a punt on whether they can increase sales to justify the additional cost.

But in practice confidence cannot be directly observed and survey results are affected by many things that may be irrelevant to those decisions, he says.  Its relevance therefore comes down to whether stronger investment and employment follows higher confidence ratings.

The evidence that it does do this “is at best weak; often it is just not true”.  

Is Twyford making a case for “three strikes and you’re out”?

When Labour’s Phil Twyford put a written question to Amy Adams, the Minister Responsible for Housing New Zealand Corporation, just before the general election last year, he was given a straight answer.

He asked for the net number of disposals of Housing New Zealand properties or houses since 18 October 2016, if any?

In reply, Adams said Housing New Zealand informed her it only records and reports information by month.

“For the period 1 October 2016 to 30 June 2017, there were 1,094 disposals and 1,275 additions, resulting in a net increase of 181 houses. This data is subject to final audit.”

Forestry reappraisal triggers memories of a time when NZ was a world leader

Export log prices  have  climbed to their  highest level in  25 years, reaching  $135 a  tonne, according to  reports  this week.  It’s a  boom  which authorities believe will not be shortlived,  because  local mills  are  having to compete hard  to secure supply  for the domestic  construction market against exporters seeking to meet strong demand from China.

Forestry may have had a  bad rap  as  a  result of  recent floods  which have  deposited  large  quantities of  wood on farms and  beaches on the  East  Coast. It’s an industry, however, which  employs  20,000 people  and  annually is worth about  $5bn, or about  3% of GDP.

The industry’s future is being reappraised, partly because of the NZ First initiative  to   promote the  planting  of 1bn  trees,  but also partly  because other  pillars of  the  country’s  export  framework—dairying, for  example—face  the implications of  reaching “peak cow”  (as  Primary Industries  Minister Damian  O’Connor puts it).

In  seeking to  regenerate  enthusiasm for  forestry,  the  Minister of Forests,  Shane  Jones,  in effect has to  start from scratch, re-establishing  a  ministry  (in Rotorua)  and  rebuilding  the   expertise in  silviculture  for which  NZ  was once renowned.

Paradoxically it was a  Labour government which abolished  the Forestry Ministry that had been responsible for  the  development  of the huge plantation  forests — in Kaingaroa, the East  Coast  and  Otago —  which  not only  supported the initiation of the export log trade, but also the  wood  processing  plants at  Kawerau  and Tokoroa, and sawmills  elsewhere.

When  the Rogernomes  entrusted  the  industry  to  “market forces”,   they in  effect  buried  the  NZ  Forestry Service’s  goal  of  making  wood products  NZ’s biggest export industry   by  2020.

With the disbanding of the ministry  NZ largely lost the fourth generation of foresters brought up by post- war figures like Bert Entrican and Lindsay  Poole,  who had helped make this country a world  leader in forestry.

They lost, too, the institutional memory behind the planting of  the Gisborne and Nelson forests on erodable land, knowing it should never have been clear-felled, an issue not in the minds of forest companies eager  to make a buck.

Health targets come down – and so the critics fix their sights on David Clark

Health Minister David Clark this week dropped the nation’s health targets.

The  targets  (which a previous  Labour  government had  started) had been  re-focussed  by the  National  government in 2009 on six  areas: increased immunisation, faster cancer treatment, shorter stays in emergency departments, improved access to elective surgery, helping smokers to quit and raising healthy kids.
 
Clark  says they have not been measuring outcomes — instead, they are measuring  activity.

His move to dump them – which apparently did not go to Cabinet – was attacked  by the Opposition, which  said dropping the targets meant there was less accountability and this would lead to more illnesses and deaths.

Housing Minister Twyford is told to be succinct – but quality is beyond the Speaker’s control

Speaker Trevor Mallard chided Housing and Urban Minister Phil Twyford yesterday for “developing … the habit of putting additions on answers after he has answered the question”.

Parliamentary questions should be succinct, Mallard reminded the Minister. The answers should be succinct too.

And once a question has been answered a Minister doesn’t need to add to it, “especially in a way that’s likely to lead to disorder or discomfort in the House”.

That’s a nice way of saying Ministers shouldn’t embellish their responses with politically charged taunts.

Play the ball, not the player, in effect.

Why Brexit will be well down among EU summit concerns (except for the British)

LONDON CORRESPONDENT:  As Europe drifts into a hot and torpid summer, there are signs that politics are not what they used to be.  Events are harder to manage when the balance of opinions underlying political formulae change and rising forces must be accommodated. Nowhere more so in dealing with migration – or the underlying questions of identity and society which it poses.

A New Zealander going to Europe after a long absence cannot fail to notice how different the streets of the cities look.  But the numbers show that there is a strong case to be made for the capability of modern societies to assimilate large numbers with great speed and success.

The accompanying political correctness can be tiresome and, to some, offensive.  The indigenous minorities which feel they have been crowded out have so far been safely ignored (a recent documentary on an obscure London regional TV channel was entitled ‘Last Whites of the East End‘).

From the flight deck at Air NZ to the cream of the country’s companies?

Shane Jones might trample over ministerial conventions but his comments  have  resonated beyond Wellington and especially in the regions.  First he  had a  swipe   at  Air NZ which, apart  from the main trunk Auckland-Wellington-Christchurch, is expensive.  Then he hammered Fonterra, voicing what many, if not most, dairy farmers would say, about the  giant  co-op.

Now, if reports circulating in the farming community are confirmed, Jones might have a dual target since Air NZ’s Chris Luxon is being mooted as a possible replacement for Theo Spierings as CEO at Fonterra.

Test for Ron Mark will be getting Cabinet approval for Poseidon purchase

Cabinet is close to a decision on new maritime patrol aircraft to replace the RNZAF’s 60-year-old Orions.  The NZDF has settled on the P-8 Poseidon, based on the Boeing 737 and flown by key allies, the US Navy, RAAF and shortly Britain’s RAF. Norway has also ordered it to replace its Orions.  The list price is about $US1.4bn for four, although this is expected to fall.

There have been reservations about the Poseidon’s ability to operate at low level as much of the Orions’ tasks include search and rescue in the Pacific. However recent P-8 tests in the maritime patrol exercise area north east of Auckland demonstrated its manoeuvrability at 3000ft and below.

Regional survey has some good news about confidence – so what will Parker make of it?

Less than a fortnight ago, Economic Development Minister David Parker dismissed an ANZ business confidence result – the bit that attracted politically awkward media headlines – as “junk” and an unreliable indicator of business activity.

We await with interest Parker’s critique of regional economic data published today.

The Westpac-McDermott Miller Regional Economic Confidence survey in the June quarter shows

• Six of 11 regions posted an improvement in regional economic confidence.
• But economic confidence in regions most closely associated with dairy and/or oil exploration has deteriorated significantly.
• Aucklanders are the most negative about their region’s economic prospects and are becoming more pessimistic.
• Households in Nelson/Marlborough/West Coast and the Bay of Plenty are the most optimistic about the future and confidence in both regions is well up on the last quarter.
• Consumer confidence (a measure of households’ views of their own economic conditions) fell in eight of 11 regions.

Economic confidence in Nelson/Marlborough/West Coast, Bay of Plenty and Northland rose sharply during the June quarter.

The reason? Westpac analysts note that much of the improvement in Nelson/Marlborough/West Coast had to do with a recovery in activity after several severe weather events earlier in the year had washed out roads and bridges and damaged horticultural and forestry businesses.

For the Bay of Plenty and Northland, sentiment is likely to have been lifted by the effects of higher commodity prices and increased tourist numbers.

Now let’s check out the down side of the survey.

The number of households expecting economic conditions to improve fell significantly in the Waikato, Taranaki/ManawatuWhanganui and Southland.

Westpac analysts reckon the Waikato region is likely to have experienced some spillover in negativity from neighbouring Auckland.  Moreover, the Mycoplasma bovis cattle disease has spread to this major dairy producing region.

The same disease is among the likely causes of Southland’s slide.

And in the Taranaki/ManawatuWhanganui region?

Well, the Government has proudly announced it will stop issuing permits for offshore oil and gas exploration in the region.

Households in Auckland are negative about the economic prospects for their region and are easily the most pessimistic in the country.

Pessimists in the region have outnumbered optimists in two of the last three quarters, mostly because of what is happening in the housing market, according to Westpac,

“ … and more specifically what government policy might mean for house prices going forward”

The imminent introduction of a regional fuel tax is unlikely to have helped matters.

Households in Wellington are quite positive about the future, in contrast, and have been since the new Government came to power late last year.

No guesses are needed. The likelihood of more public sector jobs is likely to have been a key support, Westpac says.

Confidence in Canterbury’s future prospects, which also rose, has been helped by a strong performance from the hospitality and tourism sector.

When he dismissed the ANZ business confidence survey as junk earlier this month, David Parker referenced an email he had received from Cameron Bagrie, the ANZ’s former chief economist who now heads a research firm, Bagrie Economics, and an article from interest.co.nz from January, which said the survey has 0.2 per cent correlation with GDP growth.

Bagrie had told him in an email “I think those surveys are very poor barometers” and “you should throw them away“.

The ANZ’s monthly business confidence surveys measure several things, of course, including the expected business activity of respondents, generally considered a useful pointer to official GDP figures produced by Statistics New Zealand.

The ANZ’s press release on the latest results distinguished between:

• “Headline business confidence”, which dipped in May . A net 27% of businesses were pessimistic about the year ahead, down 4 points from April. And…
• Firms’ views of their own activity (“which has the stronger correlation with GDP growth”), dipped from +18 to +14, the lowest reading since November. Agriculture lifted; construction was flat at low levels and retail fell 10 points to match it as the equal lowest-confidence industry.

Before anyone asks Bagrie if he has emailed Parker about Westpac’s regional survey,  let’s hear what he had to say about the ANZ business confidence survey.

He acknowledged to BusinessDesk he had emailed Parker, and that headline business confidence “bears no resemblance to economic growth”,

But he also said he pays attention to a derivative of it, the gap between business confidence and firms’ own activity expectations.

In the the latest survey, firms’ views of their own activity dipped from net 18 per cent optimistic to net 14 per cent, the lowest reading since November 2017.

“When that gap is large you do tend to see that impact on business plans – that’s the one you can’t ignore,” Bagrie said.

“If it gets to be pretty negative it is a big indicator of uncertainty and it does have an impact on the business cycle. When uncertainty is high, firms don’t tend to invest.”

Talking with BusinessDesk, Bagrie also harked back to the “winter of discontent” in 2000 – when business confidence plunged after the Clark Labour government took power.

This was not directly comparable to current business confidence trends, he said. In 2000, Wall Street’s Nasdaq was crashing followed by markets around the globe, and the Reserve Bank had hiked the official cash rate by 150 basis points to 6.5 per cent within six months. Current uncertainty was to do with the government, Bagrie said.

 

 

Wanted: a CEO who can bring lost prestige back to MFAT

The mega shuffle of public service CEOs  (which   Point of  Order   noted  in  a   June  13 post, State Services: What’s behind the “Upheaval”) throws up some  significant challenges for the States Services Commission.

Most interest is focused on a   replacement  for  the Ministry of Foreign Affairs and Trade’s CEO, Dr Brook Barrington, who will move to the Department of Prime Minister & Cabinet early next year to become, in effect, the government’s senior public adviser.

The State Services Commission – and probably Foreign Affairs Minister Winston Peters – will be reluctant to follow Murray McCully’s example in the last government of bringing in a private-sector replacement CEO.  MFAT itself has two good candidates: Bede Corry, currently deputy CEO, and Chris Seed, about to finish his term as high commissioner in Canberra.

Given Peters’ early pronouncement of Australia constituting NZ’s most important diplomatic relationship, Seed may have his nose in front.