We are constantly told that things are going to get worse. And they probably will. Photo / 123RF
OPINION:
With unemployment still near record lows at 3.4 per cent and the average hourly wage up by 7.6 per cent - well ahead of inflation - why does everyone feel so grumpy about the economy?
Is it the weather? Is it house prices? Is it political?
Even some headline-grabbingnumbers that look bad at first glance, aren’t really.
Company liquidations are on the rise. Hardly surprising given the terrible state of the economy, right?
But step back again and we see that at 47,000 consents issued, they are still running at much higher levels than they did pre-Covid.
We are issuing almost twice as many consents as we did in 2014, when we were busy patting ourselves on the back for being a “rockstar economy”.
The reality is that on paper this economy remains very strong. But anecdotally that bit of paper might as well be floating in a puddle outside an empty downtown food court.
Nobody wants to hear about how good the economy is on paper, they want numbers that match their mood.
Ok, I’m being a bit facetious. There‘s no question that things are tough out there, especially for those on fixed incomes.
Inflation is still high and food price inflation is worse. Those figures for soaring hourly wage rates are derived from aggregating and averaging total pay across the working-age population.
The number is being bolstered by pay gains being made by younger workers who are using the tight labour market to switch to better-paying roles or grab internal promotions.
Good for them.
But according to new research from the Financial Services Council, almost half of Kiwis now worry about money daily or weekly - equating to 300,000 more than last year.
However much the property sector needed some time out to cool off, house prices and interest rates go to the heart of feelings of economic security for many New Zealanders. And the equation there is not good.
While data tells us that Kiwis are still spending on travel and hospitality, we know retailers are doing it tough.
It feels like some parts of this economy are already well and truly in recession.
But that does beg the question, why does the economic data continue to look so strong?
Something’s out of whack.
ANZ chief economist Sharon Zollner addressed the issue last week. Speaking at the Financial Services Council conference, she highlighted an economic concept called the Misery Index to explain the phenomenon.
The index simply adds together the two worst economic phenomena - inflation and unemployment - to give a sense of how tough life is for people.
While inflation is horribly high, job security is extremely good right now. So the misery index is not historically high.
While people complain a lot about the cost of living, they can look through it. They don’t actually have to adjust their behaviour too much, as long as they are sure they’ll have a job.
I think there are also cyclical reasons why we’re feeling bad now.
An issue for sentiment is the direction of travel for the economy. We’re constantly being told that things are going to get worse.
Because people tend to focus and worry about the future more than the past - i.e. where we are going rather than where we’ve just been.
It doesn’t help that our economic data is almost always out of date by the time we get it.
A lot of the numbers we’re seeing now - including bank profits - capture the tail end of the stimulus-fueled boom.
We won’t see GDP numbers for the first quarter of the year until June - by which point many businesses will be starting to worry about the third quarter.
People feeling grumpy about the economy but annoyed by the ongoing strength of the economic data can take heart. It is going to get worse.
But conversely, by the time the top-line economic numbers, like unemployment, are actually terrible, inflation will be down.
We’ll be looking out at the other side of this cycle and feeling a bit more optimistic - possibly even thinking we’re rock stars again.