An age of diminished expectations?

The Westpac McDermott Miller consumer confidence survey results are out this morning.  To the extent they get any media coverage, no doubt the focus will be on the headline result.  Here is the summary chart.

westpac 1

In Westpac’s words

Consumer confidence fell sharply in September, taking it to its lowest in six years.

There probably isn’t much predictive value in these results for actual economic data, but I find the results interesting in their own right: how people generally are feeling about their economic fortunes and the economy more broadly.  After all, respondents aren’t just the “ideological enemies” of the government.

The Westpac results don’t seem out of line with the most recent Colmar-Brunton poll (taken six weeks ago) in which respondents are asked a single question.

“And do you think during the next 12 months the economy will be in a better state than at present, or in a worse state?”

colmar brunton

The public no longer seem very optimistic at all.

But in some ways I was more interested in the longer-term trends in a couple of the sub-components of the Westpac index.   For example,

westpac 2.png

People are now less optimistic about improvements in their own personal position than at any time in the last 30 years outside periods when the economy was already in the midst of a recession (and materially lower than in the fairly shallow 1997/98 recession).  And look at the contrast between confidence levels from say 1994 to 2007 (across two different governments) and those now.  It looks a lot like a fairly steady trend decline.

And then there is the question about the longer-term prospects for the economy itself.  Respondents might not know much analytically about the issue, but their perceptions are interesting nonetheless.

westpac 3

The latest observation isn’t startlingly bad (and there was that sharp –  but brief – dip a couple of years ago) but look how diminished expectations are now (last three years or so) relative to the entire history of the series.  There are individual quarters that are weaker (though note, not in the 2008/09 or 1997/98 recessions) but in thirty years there has been no three year period where medium-term optimism has been weaker than over the last three years (under National and Labour governments).   And this pessimism isn’t tied to the last recession –  look how upbeat people briefly were in the couple of years after the recession ended.

(The medium-term picture is less bad in the ANZ’s consumer confidence survey, (which has a much shorter run of data) and it would interesting to know the precise question asked, to help understand that difference.)

Then again, in an economy that has managed very little labour productivity growth in the last five or six years, and none at all in the last three years, perhaps it shouldn’t surprise.

real GDP phw jul 18

In an economy where the promises of economic reform decades ago came to little  (for younger readers, that is the then Minister of Finance back in 1989/90)

caygill 1989 expectations

And where none of the political parties – especially not National or Labour that have led all our governments – seem to care much if at all, or have any serious proposals for turning around the continuing decades of underperformance, isn’t the public quite rational in being much less optimistic than they were?

A more interesting question is why they/we don’t find a way of demanding something better.

10 thoughts on “An age of diminished expectations?

  1. I think most people feel pretty helpless when it comes to influencing the economic prospects of nation as a whole. Those on the political left feel more strongly about equality than improving overall economic wellbeing and the rest of us are frustrated by the tendency of successive centre-right governments to further entrench regulatory and fiscal barriers to growth. Add to that a dollop of Kiwi complacency about anything other than the weather and All Black losses, and you see why the public doesn’t demand something better.

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    • I don’t think most people feel helpless or even think about the economic prospects of the nation. Most people are more concerned about going to work and career development, putting food on the table, paying for the house and the odd weekend entertainment and the annual holiday.

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    • Yes, and looking across other countries periods of relative decline are too often allowed to run on for decades and decades. Perhaps the seeds of the decline, including aspects of the political process, are part of what make it very hard to reverse things – or even for a compelling figure to emerge who can command public trust and support for a different way.

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      • Sounds as if you are looking for a Thatcher figure. Her success depended on two factors: she stood out by being surrounded by incompetents who lacked her will power and secondly a convenient war in the Falklands increased her public support at a critical time. No current NZ politician springs to my mind.

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  2. Hi Michael,

    What ideas do you have for improving NZ’s productivity / economic performance specifically? Have you blogged about this in the past?

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  3. I think your guess (its people feeling low GDP productivity) is probably wrong. Similarly all those who think business and consumer confidence is the governments responsibility (ie Its the coalition creating uncertainty). GDP is still OK and the coalition is actually being very predictable (troops staying, immigration hit by NZ first as expected)

    I’d say that Trump, Brexit and trade wars are significant. Think China and our next big market Aussie. They also depend on China. In the home grown factors I’d say stagnant house price growth, Auckland and Canterbury. Slowing migration as well.

    So lets go through that;
    Migration is crack cocaine. Growth with lots of negative side effects (they all move to Auckland or Aussie)
    Trump and Brexit out of our control so do the best you can and hope to muddle through
    Falling house prices – positive in the long run as housing consumes less of income.

    A lot of very bad things happen when people are all jointly “confident”

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  4. “A more interesting question is why they/we don’t find a way of demanding something better.”

    From my personal perspective this question is being asked more and more. But does our current system allow a way to demand better. Our two main parties are not really that far apart. Perhaps in the promises they make, but in reality little changes. Productivity has been in free fall for decades with no effort to arrest its fall by either side. Just the usual platitudes that all will be better soon. The money and time required for a new party to have any chance of success is daunting at best. So how do we get to change a system that seems designed to not be changed.

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