Independent economist Rodney Dickens said in his first Ravings with Rodney column for the year the business confidence surveys which lead political & economic direction “have major political bias”, and backed that up with charts & statistics.
Mr Dickens, who runs his own company, Strategic Risk Analysis Ltd, wrote: “The ANZ business survey has gone AWOL again. Unfortunately, the bank economists – and therefore the media – haven’t focused enough on the massive political bias that currently overwhelms the results of the survey and make it a poor input into business & investment decisions.
“The NZIER business survey has been corrupted less by political gamesmanship, but some components have become poor leading indicators, while even the most useful component is under a cloud.”
In his Raving column, Mr Dickens put the 2 main components of the ANZ & NZIER surveys “in context which is critical for assessing whether much, if any, weight should be put on them in making business & investment decisions.
“When what were once useful leading indicators can’t be relied on, it increases the importance of having access to quality analysis of economic and housing prospects as input into business and investment decisions. Our driver-based approach to forecasting, that is supported by educated interpretation of the leading indicators rather than blind faith in indicators that have gone AWOL, should be a must-have for any businesses & investors wanting to make informed & profitable decisions.”
What Dickens found
“Based on the ANZ business confidence survey, the economy is heading for a recession (ie, negative gdp growth), with significantly more firms negative than positive (left chart). Based on the ANZ own activity survey, near-term prospects for annual gdp growth aren’t so bad, but growth should slow to below 2% over the first half of this year (right chart).
NZ Herald, 30 November 2017: Business confidence tumbles to 8-year low in November
Stuff, 30 November 2017: Slump in business confidence poses ‘material risk’ to economy
Mr Dickens didn’t blame the journalists for reporting the survey results verbatim: “They lack the resource & maybe knowhow to back-test the reliability of the surveys. Consequently, they rely on the bank economists to provide the appropriate interpretation, which is a mistake.
“The headlines should have read: “Businesses again hijack survey to make political protest” & “Survey greatly overstates economic risks from the change in government”.
Mr Dickens said these surveys were useful indicators of near-term economic growth prospects before 2002.
He said the NZIER survey “hasn’t been corrupted as much by political gamesmanship: Thankfully the commentary by the NZIER principal economist regarding the falls in many components of the NZIER quarterly business opinion survey was more balanced. This has in turn largely been reflected in the media commentary on the results of the December quarter survey.”
Note: Red & blue lines across the foot of each graph denote periods of government: Labour (red), National (blue).
NZIER, 16 January 2018: NZIER’s quarterly survey of business opinion shows businesses more pessimistic after the election
Stuff, 16 January 2018: Business confidence drops, with fewer expecting to hire or invest
Interest.co.nz, 16 January 2018: NZIER business opinion survey shows the usual fall in confidence after a Labour-led government takes office, effect of election on actual business activity muted
Mr Dickens took issue with what he said was “still a lack of supporting analysis to put the NZIER December quarter results in context. And in my assessment there hasn’t been enough focus on political gamesmanship; instead, like the commentary accompanying the ANZ November & December surveys, the initial focus was on ‘uncertainty over new government policies’.”
He said the NZIER business confidence survey “has, like the ANZ business confidence survey, become much less useful as a leading indicator of economic growth since 2002. As the NZIER principal economist goes on to point out, it has generally had a negative bias while Labour governed and a positive bias while National governed, although this has only been the case after 2002.”
Rodney’s Ravings (entry by free subscription)
Attribution: Rodney’s Ravings.