No quick fix for confidence
The latest NAB business confidence data, which showed confidence has fallen to its lowest point since April 2009, sparked some very different reaction from our economists.
CommSec’s chief economist Craig James expressed confusion, pointing out that while the NAB data showed confidence at a three-and-a-half year low, the latest reading from polling firm Roy Morgan shows confidence is at a 10-month high.
“The $64 million question is whether the NAB survey is accurately describing conditions across Australia. The Roy Morgan business survey covers 2,800 firms, rather than just 600, and it showed a lift in business confidence in the latest month,” says James, who also points out that the Roy Morgan survey has been in operation for only two-and-a-half years.
Craig James says he’s leaning towards the picture presented by the Roy Morgan survey, arguing that there are signs spending has increased in the past two weeks since the interest rate cut. But I’m not sure I agree, given what I am hearing from entrepreneurs and managers. I would be very surprised if confidence had really improved over the course of 2012.
As NAB’s data on actual business conditions showed yesterday, it’s really tough out there. Sales are under pressure, profitability is under pressure and the leading indicators such as forward orders and inventory do not look good.
Another interesting reaction to the confidence data came from Adam Carr, economist and commentator at Business Spectator.
In a tweet shortly after the data was released, Carr blamed the Reserve Bank for the fall in confidence, claiming that cutting rates to what many see as emergency levels had “spooked” businesses.
Carr, who has argued strongly against the RBA’s recent cuts, claiming the economy is actually growing at a solid clip, also took a shot across the bows of those calling for further cuts in 2013 in today’s column, slating “lacklustre economists”.
“Rate cut nuts really need to ask themselves a question. If the lowest lending rates since 1960s – 175bp of cuts over the last year – cannot lift confidence, cannot lift lending and cannot weaken the Australian dollar, why would still lower rates do it?”
Not a bad question, is it?
Carr’s view is that the Australian economy has been paralysed by pessimism – we’ve forgotten that the economy continues to grow well, that the labour market is extremely strong and that rates are at historical lows.
That’s all true, but perhaps we are asking a bit much if we expect the psyche of consumers and businesses to quickly bounce back from the biggest financial crisis in 40 years.
Economists and politicians have spent years telling consumers and businesses how interconnected Australia is with the global economy, so asking them to now set aside the steady stream of news stories about Europe’s austerity problems and America’s fiscal cliff is difficult.
Add in concerns about the high Australian dollar and the local political situation and you can get a feel for why – rightly or wrongly – pessimism has set in.
The question is: What shakes that pessimism?
Carr is probably right when he suggests that the RBA probably hasn’t got too much further to cut, but I think we need to hope that Craig James is right about the signs of increased spending he has seen since the December cut.
Otherwise, the pessimism will be hard to shake, particularly as we enter an election year when the government and parts of the economy go into a holding pattern.