ANZ Bank New Zealand has rejected assertions by Economic Development Minister David Parker that the bank’s business confidence surveys are “junk”, saying they’re a reliable indicator of business activity.
At the Economic Development, Science and Innovation select committee on Thursday afternoon, Parker was asked whether he was concerned by ongoing weakness in the monthly ANZ Business Confidence surveys. Headline business confidence began falling ahead of the election last year and turned negative in October 2017, then the lowest reading since September 2015. According to the last survey, from May, a net 27 percent of businesses are pessimistic about the year ahead, down four points from April.
Parker said the survey results were “junk. They’re junk”, and referred to an email he says he received from Cameron Bagrie, former chief economist for ANZ who now heads up research firm Bagrie Economics.
Parker said Bagrie told him in an email that “I think those surveys are very poor barometers” and “you should throw them away.” However, Bagrie says he didn’t email Parker.
Parker also mentioned findings published earlier this year from former Reserve Bank economist Rodney Dickens, who now runs his own data and analysis company. Dickens looked at whether the sentiments expressed by companies in business confidence surveys matched with what happened to GDP. He found a miserable 0.2 percent correlation with GDP growth – meaning business confidence reflected actual GDP growth only 20 percent of the time.
Dickens argues business confidence surveys often reflect political bias from company executives, rising with a National government and falling with Labour, regardless of the actual economic conditions.
Meanwhile, Parker said Bagrie told him in an email that “I think those surveys are very poor barometers” and “you should throw them away.”
However, Bagrie says he didn’t email Parker.
“Our measure of business sentiment suggests firms are downbeat. But it is important to look at business sentiment in the context of other survey measures and economic indicators.”
Liz Kendall, ANZ Bank
Liz Kendall, senior economist at ANZ, says the bank is confident the survey reflects views in the business community well, but businesses views are only one component of the many aspects that make up an economy.
“Our measure of business sentiment suggests firms are downbeat. We suspect policy uncertainty is one factor, along with other headwinds facing the economy at present. But it is important to look at business sentiment in the context of other survey measures and economic indicators,” Kendall says.
“Our measure of expected activity maps well with official GDP figures produced by Statistics New Zealand… meaning it provides a reliable and robust gauge of business activity. Similarly, employment intentions from the survey provide a good signal on conditions in the labour market. Many of the ANZ Business Outlook indicators are corroborated by NZIER’s Quarterly Survey of Business Opinion – an entirely independent survey.”
Bagrie says headline business confidence “bears no resemblance to economic growth”, but he pays attention to a derivative of it, which is the gap between business confidence and firms’ own activity expectations. Per the latest survey, firms’ views of their own activity dipped from net 18 percent optimistic to net 14 percent, 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.”
Bagrie also said the “winter of discontent” in 2000 – when business confidence plunged after the Clark Labour government took power – was not directly comparable to current business confidence trends. 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 percent within six months. At the moment, uncertainty was to do with the government, Bagrie said.