The grass is greener across the ditch

"The paradox for economists is business is actually becoming more optimistic but their staff and customers are becoming less.”

-Andrew Cornell, bluenotes managing editor

Yet despite not hugely different economic outlooks, the two sides of the Tasman are displaying vastly different sentiment.

New Zealand consumer confidence rose in May. Australian consumers remain in a funk. Part of the reason is jobs: unemployment in New Zealand has hit its lowest level in almost nine years, fuelling optimism even as wages stagnate.

But in Australia, while unemployment is nominally low, there is considerable debate around ‘underemployment’ – people who would like to work more than they are. The more depressive estimates put underemployment at around 20 per cent of the work force. Pessimism about the job outlook prevails.

The ANZ-Roy Morgan NZ consumer confidence index in New Zealand rose 2.2 points to 123.9 in May.  Australian consumer confidence is 109 and falling.

Cheaper petrol and a rising Kiwi are also encouraging spending. Australian retail sales meanwhile are moribund. There are clouds on the NZ horizon, not all long and white. The May budget will take the economic pulse of the country; there’s a general election in September and elections always fog the outlook.

Overall though, research generally shows NZers think the economy is on the right track but there's increasing concern about the cost of housing, immigration and growing inequality.

Paradox

In Australia, the paradox for economists is business is actually becoming more optimistic but their staff and customers are becoming less.

According to ANZ Research, the contrast in the Australian economic data between the strength of business sentiment and the weakness in consumer confidence is becoming pronounced.

“While the two are typically correlated, the current divergence is not unprecedented – though it is approaching the lower end of the range,” ANZ economists say.

There are potentially worrying implications from the anomaly.

“Given they are useful leading indicators, is there anything we can say about how gaps between the two are typically closed?” the economists asked. “For instance, is it the case that business conditions usually drop towards consumer sentiment when the latter is much lower than the former?”

“If it is, then the current low level of consumer confidence implies a sharp weakening in business conditions in coming months. This would challenge our expectation of a gradual improvement in the labour market.”

Australian wages continue to rise more slowly than inflation: annual wage growth for the March quarter coming was 1.9 per cent compared with inflation at 2.1 per cent – meaning real wages went backwards for the first time since June 2014. The story was worse for private sector wage growth - at 1.79 per cent it was the lowest on record.

More happily, ANZ argues the strong business sentiment, coupled with rising headline employment, should actually flow through to improving labour markets and expectations about wages – eventually pushing up consumer sentiment.

“We think this pattern is likely to play out over the next few months, with a better performing labour market leading to a stabilisation followed by recovery in consumer sentiment,” ANZ says.

Yet the disparity in mood on the two sides of the ditch runs deeper than the economic stats.

It’s something Tony Mitchelmore, a principal of qualitative market research firm Visibility Consulting, has been watching for some time.

Entitlement

Enduring themes, evident since the mid-90s, are an Aussie sense of entitlement in contrast with a Kiwi mentality of having a crack and accepting the need to compromise and strive.

Highly regarded The Australian Financial Review political editor Laura Tingle explored the theme in depth in her essay “Great Expectations”, analysing a mood which stretches back decades but accelerated with the John Howard years and subsequent governments playing the ‘it’s not your fault’ populist tune.

“Australians have become in effect a nation of whingers; New Zealanders just get on with it,” Mitchelmore says, drawing on a constant base of focus groups.

However he stresses there is more nuance to the story: “I think what it also reflects is higher aspiration in Australia, a frustration around wanting to achieve more.”

“New Zealanders appear more content with their lot – but they continue to perceive Australia as a land of opportunity.”

Mitchelmore’s research suggests the disparity between business and consumer sentiment in Australia probably reflects differing degrees of understanding of the issues: business tends to look at the data and evidence more closely – and that’s looking better – while the general public is immersed in the popular and social media – where negativity is the prevailing tone.

“Australians see the cost of living rising, they’re worried about stagnation in their fortunes and in the country politically, they’re frustrated,” he says. “They’re afraid permanent jobs are disappearing. Business tends to be more rational, less emotional.”

In contrast New Zealand consumers since the global financial crisis and during the era of Prime Minister John Key have become more optimistic – and indeed there is a correlation between the strength of the New Zealand dollar and consumer confidence. (Even though cheaper imports are offset economically by the pain for the country’s export-led economy.)

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One challenge New Zealanders and Australians have in common is the populist perception immigration is a threat to their lifestyle rather than a driver of the economic growth which makes that lifestyle possible.

The anti-immigration mood in Australia is more mainstream but ANZ economists see it emerging in New Zealand too.

“Record-high migration is certainly hotting up as a political issue,” ANZ economist Sharon Zollner says in a recent chart park.

“To quote one response the last time I showed this chart: ‘Who would have thought all those new New Zealanders would be such fervent NZ First supporters?’”

NZ First is a populist political party with an anti-immigration skew.

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The clearest indication of the relative attractiveness of New Zealand and Australia is another slice of immigration: that of Kiwis heading west across the ditch.

It tells a story of New Zealand fortune and the trend was a source of pride for the Key government.

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ANZ’s Zollner says the net gain from Australia in the past 12 months is 780 people.

“You can see in the chart how historically unusual that is,” she says. “Both departures and arrivals are very steady at the moment. The policy change around university students (new NZer students now having to pay foreign fees) may change that, however.”

In recent history – post the Closer Economic Relations pact in the 1970s - Australia has been NZ's employment outlet value. With the downturn in the Australian economy in recent years Kiwis have headed home.

The contrast in mood between the two nations is obviously complex and stretches over longer time frames than single governments or policies and pop sociology doesn’t fully explain it.

But the differences between two relatively similar societies in the same part of the world with not-dissimilar export-led economic outlooks is striking.

Australians can take some heart: the Wallabies may not beat the All Blacks but an Aussie team of butchers triumphed in the inaugural Trans-Tasman Express Series in Wellington last week.

According to Food Service News, “two teams of six battled it out over two hours in a series of tests before the Australian Steelers were crowned champions over the Kiwi Sharp Blacks”.

Australian team captain Sadam Stratton of Tender Gourmet Butchery (NSW) says “we are just so thrilled to be able to take out this competition, particularly as we prepare for next year’s World Butchers Challenge in Ireland”.

In butchery, at least, the Kiwis just couldn’t haka it.

Andrew Cornell is managing editor at bluenotes