People are also feeling anxious about the state of the world – we’re being bombarded with unsettling news about artificial intelligence, trade wars and real wars.
I don’t think that’s helping with confidence.
The disconnect between what the economic data says and how people actually feel about the economy seems to be growing.
Last week we got news that GDP is growing again. It bounced by a healthy 0.7% in the last quarter of 2024 – a stronger result than economists had dared forecast.
But results of a much more up-to-date consumer survey last week showed confidence in the outlook has slumped.
“Any positive thoughts about our economy have been completely drowned by the release of Westpac’s Consumer Confidence reading, which was simply awful,” wrote BNZ head of research Stephen Toplis in a note on Wednesday (which was supposed to be about our improving current account deficit).
The Consumer Confidence Index fell eight points in March, taking it below average and back to levels more fitting for a recession.
“If we exclude the misery of the last few years, and one quarter during the GFC, you must go back all the way to the deep recession of 1991 to see a reading this low,” Toplis wrote.
That’s a worry because it suggests people don’t think things are getting better. They are still mired in the kind of gloom that would have made more sense in the middle of last year (when we were in a recession that rivalled 1991).
If people don’t think things are going to get better then they might not.
If consumers lack confidence, they won’t spend and retailers and other businesses will earn less and be forced to keep cutting costs.
At best, that becomes a headwind slowing the recovery path. At worst, it can create a recessionary spiral.
So what gives? Has the economy stalled again since the end of last year? Is the survey an outlier? Or are people just overly gloomy?
Perhaps it’s a mix of all three.
A couple of other polls suggest that the Westpac survey was not an aberration.
There was a political poll that showed the Prime Minister’s approval rating had slumped and that Opposition parties had the numbers to form a Government.
Then on Friday the latest Ipsos Issues monitor – a poll of 1000 Kiwis – gave the coalition Government a rating of 4.2 out of 10, the lowest on record since it started measuring in mid-2017.
That’s worse than Labour at the peak of inflation and suggests that the discontent is very real.
But the Ipsos survey also holds some clues as to what is happening.
Inflation was still the No 1 issue in the minds of most Kiwis.
It is dwindling – down to 50% of those surveyed seeing it as the most pressing problem (compared with 55% last October),
But it suggests half the population still feels like it is going backwards when it comes to the cost of living.
Technically, inflation is low in New Zealand. That’s just a fact.
It fell to 2.2% per annum in the September quarter and has tracked sideways since.
But prices haven’t fallen. The cumulative pain of inflation since it spiked in early 2021 hasn’t been unwound.
According to the Reserve Bank (RBNZ) inflation calculator, food prices have risen about 22% since 2021. If your wages haven’t, the weekly shopping mission is going to remain stressful.
Meanwhile, rising unemployment and increasing job insecurity are crimping wage growth.
The Ipsos survey showed “the economy” as a general area of concern, rising to third on the list of issues for people after being rated a problem by 30%.
As an economic commentator, I try to be upbeat.
I can see plenty of green shoots on the economic outlook.
The strong GDP result was underpinned by the export economy, such as agricultural earnings and a much-needed return of tourists.
That’s good. It means the recovery is being built on strong foundations.
But it does explain why people in the cities still feel like we’re in recession.
The biggest negative in the GDP figures was the construction sector, down 3.1% for the quarter, which is a big headwind for Auckland’s economy.
Public administration also had a shocker (down 0.5%), reflecting the big cuts in state sector jobs over the past year.
As I pointed out last week, this has an outsized impact in New Zealand where state sector workers represent a higher proportion of the workforce than in the likes of Australia or the US.
It was no surprise then to see the Westpac survey show that consumer confidence was lowest in Wellington, but much stronger in the regions – especially in the lower South Island.
I’m actually pretty optimistic about the outlook.
But telling people they should feel good because the numbers are good doesn’t work.
Investors, market analysts and economists tend to look forward when they assess the economy.
Consumers are much more focused on the present.
There is still plenty to worry about while we wait for the labour market to stabilise and some sort of normality to emerge on the global front.
Inflation needs to stay low for an extended period to allow the shock of the past four years to abate.
If we can hold our nerve then this recovery should spread from the regions to the cities.
Lower interest rates will eventually work their magic and some of the Government policy changes will help.
Being officially out of recession won’t change people’s daily experience of the economy but it will help lift the mood.
It is a necessary, but not sufficient, condition for recovery.
We’re on our way.
Liam Dann is business editor-at-large for the New Zealand Herald. He is a senior writer and columnist, and also presents and produces videos and podcasts. He joined the Herald in 2003. To sign up for his weekly newsletter, click on your user profile at nzherald.co.nz and select “My newsletters”. For a step-by-step guide, click here.
