Joe the Confidence Killer, they could call him. Hockey the Hatchet man of Hope, the Slayer of Sentiment.
The Westpac-Melbourne Institute Consumer Sentiment Index fell again between February and March, the Institute revealed, and is now down to 99.5 after reaching a high of 110 in November. “The proportion of pessimists now exceeds that of optimists for the first time since May last year,” the Institute darkly reported. Fairfax columnist Michael Pascoe correctly pinged Treasurer Hockey’s gloom, doom, we’ll-all-be-rooned rhetoric for the slump. Hockey’s garment-rending about the state of the economy continued well past his ascension to the treasurership. It continued through his first visit to Washington DC (which yielded dramatic predictions of bad times coming, and a $9 billion handout to the Reserve Bank to help fight them), December’s MYEFO statement, in which he used low-ball nominal GDP numbers to complain about the huge debt Labor had left him, and into the New Year, when he promised a slash-and-burn budget.
But in particular, as Pascoe spotted, consumer sentiment was also affected by partisanship: Labor voters see nothing but economic bleakness compared to Coalition voters — the gap this month is 84.5 for the former to 115.4 for the latter, a dramatic reversal from this time last year when Labor voters led Coalition voters on confidence by 25 points.
As we’ve seen regularly from Essential polling, voters’ partisanship dramatically affects how they react to economic issues. How people see the economy depends heavily on whether the side of politics they align with is in power. If they’re not — as was the case for Coalition voters before the election and Labor voters after — they tend to see a bleak wasteland of an economy, while their opposites think all is rosy. Last year’s election gave us an opportunity to watch voters flipping between gloom and optimism in real time, with Coalition voters dramatically changing their minds about the state of the economy immediately after. And as we’ve seen before, partisanship even influences voters’ view of their own financial situation.
Curiously, however, none of this seems to matter much in the real world. That is, consumer sentiment doesn’t actually appear to affect consumer behaviour a great deal. Journalist Greg Jericho did some excellent work on the link between consumer sentiment and retail turnover (and other economic indicators) a couple of years ago and found that there wasn’t much, concluding “on the actual economic measure most closely associated with consumer confidence about the best we can say is that the confidence measure is good at telling us what was happening 3-6 months earlier”.
And looking at consumer sentiment over the last couple of years, one would have to agree: there’s not much link between changes in consumer sentiment and retail sales. For example, there was a big surge in consumer confidence in February last year — the Westpac-Melbourne Institute index went up nearly 8 points. That happened to coincide with one of the bigger monthly rises in retail turnover of late, of 1.5%. But then sales fell 0.6% the following month despite another 2.2 point rise in confidence. And a big rise of over 5 points in November 2012 coincided with a fall in turnover of 0.3%. And the repeated falls in sentiment from December last year until now happened at the same time as retail turnover went up by 0.7% and 1.2% in December and January.
This isn’t to bag the accuracy of the Westpac-Melbourne Institute survey, or Roy Morgan’s consumer sentiment polling. There’s nothing wrong with the polls. The issue is that people’s stated view of the economy doesn’t necessarily translate into purchasing decisions. When you look at the major spending decisions of consumers, partisanship isn’t evident. In April last year and in May the previous year, despite a huge gulf between Labor and Coalition voters on how they viewed the economy and their personal financial situation, they were virtually indistinguishable in terms of their decisions to buy a car, take a trip or renovate their homes. Indeed, Coalition voters had taken more holidays (perhaps understandable given retirees tend to skew Liberal?) and bought more cars than Labor voters.
That is, they tell pollsters one thing, but may very well do another. Which is why consumer sentiment indices aren’t overly helpful at predicting consumer behaviour.
Some perspective might also be needed for today’s unemployment data: a sharp jump in full-time jobs underlines the case for ignoring the seasonally adjusted employment data and watching the trend series in the February report from the Australian Bureau of Statistics this morning. But even then the trend series showed a much larger than expected rise in new jobs, adding to the feeling that the economy is continuing to strengthen.
The seasonally adjusted series showed a huge 47,000 jump in new jobs, coming from an estimated 80,500 jump in full-time employment, which more than offset a 33,300 drop in part-time employment. That helped push the value of the Aussie dollar back towards 90.50 US cents (away from the Kiwi dollar!) — up half a US cent, after a solid rise overnight (“rate rise looms”, etc). Economists has forecast around 10,000 to15,000 new jobs, so that’s a bit of a miss.
This was one of the largest increases in full time employment seen for years, and is similar to the 71,000 plus jump in new jobs reported in February, 2013 – that time it was a huge jump in part time jobs (almost 54,000, plus nearly 18,000 full time). Partly it reflects a new survey panel the ABS began using in February. Further adding to the peculiar nature of the data was a fall in hours worked in February, which seems distinctly odd given there was such a huge increase in full time jobs. The participation rate also rose 0.2 of a percentage point to 64.8%, which is good news, if a little hard to credit given the spate of bad jobs news lately.
But adding to the feeling that the jobs market might be stronger than the consumer confidence and business surveys suggest, the ABS said the loss of 37,000 jobs in January had been revised to 18,000 new jobs, which would be a solid monthly figure at any time. That’s around 66,000 new jobs in two months, echoing the start to 2013.
All that made for a very busy labour market last month: the new full-time jobs works out at around 4000 a day, while the lost part-time work was around 1300 a day. Net result: “Australia’s seasonally adjusted unemployment rate increased by 0.1 percentage points but the rounded estimate remained at 6.0% in February,” the ABS said.
Looking at the trend data, there was still a solid 36,000 jobs created last month, while unemployment rose by around 16,000, the participation rate remained steady on 64.7% and the number of hours worked rose by just over two million. So even by conservative measures, things are considerably better than Joe Hockey has been making out — and better than consumers have been telling pollsters.