The “lag” factor is clear and stark in the latest business mood figures.Today's quarterly survey of business opinion, released this morning by the Institute of Economic Research, shows the level of optimism for the economy “soaring&rdquo
The “lag” factor is clear and stark in the latest business mood figures.
Today’s quarterly survey of business opinion, released this morning by the Institute of Economic Research, shows the level of optimism for the economy “soaring” – a net 36% of respondents were in positive territory, compared to 23% three months ago.
The more realistic question about firms’ expectations for their own business was still quite optimistic – up from a net positive 10% to 20%.
But even that may be on the high side. The survey asks firms every three months about their experience of the previous three months and their expectations of the next three, with the questions covering factors such as trading activity, profitability, costs and hiring.
Looking back over the last year, the “past three months” almost always comes in lower than what was expected three months previously.
In June the previous month’s trading activity was in line with the March figure, but the following month a net negative of -10% became -20%. In September an expected +16% became -10%; in December +10% became -5% in reality.
This month firms are net +20% positive for the next three months. Don’t hold your breath.
The lag factor is not all one way: on numbers employed, a net 36% expected to shed labour in the three months to June but in the end 31% did. That turned the other way the following quarter through: a net 19% expecting to shed jobs became 29%; followed by 0% becoming 18% the following quarter, and 1% expecting to hire three moths ago becoming 15% employing fewer people.
“Expectations are soaring, reality hasn’t followed through,” says NZIER economist Shamubeel Eaqub.
The recovery is also appearing in patches. Exports are picking up, especially to Australia, Mr Eaqub said, but the domestic economy is mostly flat.
The retail sector, in particular, has had to scale back its optimism.
“This is an unusual recovery in that people seem to be de-leveraging, paying off debt, which hasn’t happened for a long time.
“Demand isn’t there. People just aren’t going out and buying stuff.”
The large services part of the economy has seen some improvement in volume of sales “but employment increases are not following through - which you would expect at this stage of the recovery.”
