The ANZ's latest monthly Business Outlook survey is showing levels of confidence last seen in 1999, painting a collective picture of a full-blown economic expansion, ANZ chief economist Cameron Bagrie says.
"All the five major sub-sectors are incredibly chipper. The economic aeroplane is firing on all engines," he said.
Bagrie said the main points in the survey are:
- Firms are extremely upbeat about their own prospects; a net 45% expect better times ahead.
- Profit expectations hit a 14-year high. "That’s significant. Making money is a precursor to investing and spending money."
- Employment and general investment intentions remain rock solid at +19% and +20% respectively.
- Residential and commercial construction intentions (+47% and +35%) eased this month but remain high.
- Investment in livestock rose to the highest reading since August 1993! .
Bagrie said that "in this early stage of the expansion" pricing gauges still looked contained, with one year ahead inflation expectations still anchored at 2.3%.
"However, the inflationary risks are starting to look one sided. We’re seeing more of a drift upwards in pricing intentions (a net 30 percent now expect to be raising prices).
"Pricing intentions in the construction sector have risen to the highest reading since December 1992."
Bagrie said bundling the ANZ Business Outlook figures with the latest reading from the ANZ-Roy Morgan Consumer Confidence survey, the bank's composite growth indictor was signalling potential economic growth of not far off 4% by early 2014.
"That’s a stretch but we’ll take the spirit," he said.
In terms of what might yet go wrong, Bagrie said he had a "nervous eye" on the global scene.
"Domestically, the (constructioncentric) growth pipeline is massive: construction activity is projected to rise from 8% in 2012 to 11.5% of GDP by 2017.
"Something has to give to make that maths add up – it’s simply too big a job for the country to be able to carry on with business as usual elsewhere."
New Zealand might simply not have the capacity on the "supply-side" to keep up, Bagrie said. And this would see the "inflation genie" emerge from the bottle.
"This is an issue that is going to get increasing attention over the coming year. The efficiency and dynamism of the construction sector; how effectively Auckland’s housing woes are addressed from the supply side; whether we see the necessary restraint in the consumer arena (we can’t have a construction and consumption boom at the same time) – these factors are all going to play a pivotal role in defining the length of the economic expansion," Bagrie said.
"Microeconomic reform needs to continue to lift the anaerobic threshold of the economy. Get these dynamics pointing in the right direction – and the central bank won’t be following that adage of removing the punchbowl as soon as the party starts to rock. They may have to dilute it but hopefully they’ll still be leaving us with a bit of fizz."
Business confidence - Activity outlook
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"Domestically, the (constructioncentric) growth pipeline is massive: construction activity is projected to rise from 8% in 2012 to 11.5% of GDP by 2017.
"Something has to give to make that maths add up – it’s simply too big a job for the country to be able to carry on with business as usual elsewhere."
New Zealand might simply not have the capacity on the "supply-side" to keep up, Bagrie said. And this would see the "inflation genie" emerge from the bottle.
I guess Bagrie believes the publicity spin as we all should.
Nonetheless, those more grounded in reality have a different story to tell:
On a large billboard on the busiest street in Christchurch, the IAG cartoon family smile down upon passing motorists.
The motorists' attention is focused on trying to dodge the ubiquitous road cones, but the family persists.
Day and night they ask "How many over-cap earthquake claims have we completed for Canterbury families?"
"2,233" they say.
Yeah Right.
The reality, from IAG's own published data as at 2 September 2013, is 266 rebuilds complete, 99 repairs complete, and the balance as cash settlements. Read more
There has never been a correlation between the Business Outlook and employment growth (even offsetting the two through time). In fact, there is no correlation between the business outlook and what the economny then does. There is a very good correlation between Business Outlook and what the economy is doing right now, and a moderately good correlation with Business Outlook and current support for the government (whatever government that happens to be at the time).
ah, no. The reason this survey has lastest so long, and is now an integral part of the data landscape is that it is a very reliable predictor of GDP. It has a track record that is enviable. That it does so with that sample size is more to do with what firms are in the sample than the simple size of it. But no-one ever claimed it predicts employment.
DC - ah, no. You can survey passengers as to whether they want deckchairs tomorrow, and give them the weather forecast. While the ship floats, the survey will be reflected in the resultant usage - apart from an occasional cloudburst or cross-sea. If the survey is of folk who haven't been told - or who refuse to believe - that the ship is going down, you can't point to it at that stage, and expect correlation.
Global growth - even measured in GDP, a suspect measure which avoids natural capital - has apparently stalled. Given that the optimists have to be relying on payment from o'seas, how long does the local food-based bubble continue?
I suggest that your 'correlation' was only possible in a regime of growing energy-supply.
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