What’s with the mixed messages from our economy?

Last week’s gross domestic product (GDP) report was comforting, coming in above expectations and pointing to the strongest improvement in 18 months.

That was a welcome piece of good news, following a difficult February reporting season littered with cautious comments from management teams.

In contrast, business confidence measures have rebounded strongly, which seems out of step with that downbeat tone.

So what gives, and why are we getting mixed messages from some of our key economic indicators?

Let’s start with the GDP report.

It saw GDP per capita rise for the first time since 2022, following eight consecutive quarters of contraction.

Good news should always be celebrated, and that’s a win.

However, quarterly GDP growth figures tell us where things are at relative to the previous three months.

The comparative period (the three months to the end of September last year) was very weak, and will likely prove the low point in this recent recession.

While last week’s numbers were encouraging, the improvement is coming off a low base.

That’s one reason many of the earnings releases during February were underwhelming.

These covered the second six months of last year, so they encompassed a combination of the improving December quarter, but also that ugly September one.

The economy was in recession (on a per capita basis) for all of 2023 and 2024, so that period was disappointing when compared with the same six months a year earlier.

These sombre results weren’t a huge surprise, but we also saw some very guarded outlook commentaries from management teams.

That’s very much at odds with what the confidence surveys have been telling us, such as the monthly ANZ Business Outlook.

Headline sentiment is sitting well above its long-term average, having hit a ten-year high in recent months.

The “Own Activity” measure in this survey has been similarly buoyant.

It’s proven to be a very useful leading indicator for where economic activity is headed, presumably because this is what firms know best.

Surveys are far from perfect, but if well-constructed and conducted they can offer a very timely pulse check of the economy.

It’s interesting that this optimism hasn’t yet been seen amongst our larger, listed companies, although I think there’s a good reason for that.

ANZ surveys hundreds of businesses across the country for its monthly Business Outlook, spanning a range of industries.

The results are collated and all we see is the aggregated net balance for each question, which means subtracting the percentage of negative responses from the positive ones.

The anonymity of the survey might allow the respondents to be more honest and candid about what they’re seeing and expecting.

That’s very different to being a listed company Chair or CEO, where fund managers, analysts and the business media will hold you accountable to every word or forecast.

In an environment where uncertainty is the word of the hour, there’s little to be gained by going out on a limb any more than you need to.

Even if there were some green shoots, it’s wiser to err on the side of caution, under-promise and then hopefully overdeliver.

I’m still optimistic about our prospects over the balance of the year.

The one-year mortgage rate has fallen from 7.3 per cent 12 months ago to 5.3 per cent today.

For a household with a mortgage of $600,000, that equates to savings of close to $800 a month.

We’re in line for a couple more 25-basis point OCR cuts too, and the GDP report (or Adrian Orr’s resignation) won’t change that.

We’ll get one next month, then another in May, which will see the OCR at 3.25 per cent by mid-year.

Beyond that, it might depend on how the recovery plays out over the second half.

The agricultural sector is another bright spot, which bodes well for many regional centres.

Although we’re seeing drought conditions in places the Fonterra payout is set to crack $10, the highest we’ve ever seen, while its dividend won’t be too shabby either. Let’s hope that GDP report points to a more stable economy, which we can build on this year as activity picks up to a more reasonable pace of growth.

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