It’s a reasonable assumption consumer sentiment leads personal debt expansion. Absent a recession, when people may well borrow to stay afloat, discretionary borrowing reflects the confidence of better times ahead. Typically this confidence is affected by several factors.
Both countries have been trading in an increasingly global economy influenced by services and technology. In Australia, the impact has been quite profound with major structural shifts in relatively short periods. If we look at the last 10 years, the ABS reports the total workforce increased by 17 per cent but that disguises stresses caused by significant shifts in composition.
Some traditional categories such as manufacturing and agriculture saw employee numbers decline by 8 per cent and 7 per cent respectively, some such as retail were static and some saw huge growth. These included healthcare and social assistance up 54 per cent, mining up 43 per cent, professional, scientific and technical services up 39 per cent, arts and recreation up 30 per cent, education and training and public administration and safety both up 25 per cent and accommodation and food services up 22 per cent.
In New Zealand, there have also been structural changes but they have been less dramatic. The increase in workforce numbers at 21 per cent over the last 10 years was somewhat above the growth in Australia; there was not an automotive manufacturing industry and associated support suppliers to disappear; the mining industry is 0.5 per cent of the workforce compared with 2.0 per cent in Australia and even the declining agriculture segment accounts for about a quarter of the share it has in Australia. Overall, the split of employees in the major segments has barely moved over the last 10 years in New Zealand with around 73 per cent in services, 20 per cent in industry and 6 per cent in agriculture.
Notwithstanding the growing cynicism of politicians, to say there has been a marked difference in the political life of the two counties of late is hardly an exaggeration.
In Australia, there have been seven Prime Ministers over the last 20 years; New Zealand has had four. Between 2010 and 2018, Australia had six Prime Ministers, New Zealand three.
However, the number of Prime Ministers is just part of the story with the manner in which the terms of elected political leaders have been truncated in Australia at odds with the measured changes of leadership in New Zealand.
Whether it be changing prime ministers, intra-party warfare, social disputes or other issues, Australia has enjoyed considerably more social and political tension than New Zealand.
Australia has also lagged behind New Zealand on gender equality. The World Economic Forum released its Global Gender Gap Report in December 2018. In the overall ranking, New Zealand improved to number 9 of the 149 whilst Australia slipped to number 39.
The report noted "Australia at 39 records a slight widening of its gender gap on legislators, senior officials and managers as well as some reversal of progress on wage equality, resulting in a slight drop in rank," while New Zealand at 9 maintains their overall Index top 10 rankings on the back of strong scores on closing the political empowerment gender gap." Those forces don’t appear to be shifting significantly.”
There is a growing body of research linking workplace diversity with superior economic growth.
Australia’s annualised Consumer Sentiment index did however move higher through 2018 to be a little over the 100 mark as 2019 kicked off. While underlying sentiment in Australia is presently heading higher, the opposite is the case in New Zealand. We do however note the monthly index in January 2019 suffered a substantial fall from December 2018 to drop below 100.
The short to medium term is therefore unlikely to see growth in non-housing personal debt in Australia come close to the rate at which it has been increasing in New Zealand.
The evidence clearly indicates a critical key to getting commerce growing, entrepreneurial flair flourishing, growth in consumer spend and an appetite for personal borrowing is to improve the mood of the population. Our analysis of the relationship between consumer sentiment and credit card spend and balances shows that behavioural change typically lags sentiment change by around nine months.
So from our perspective as credit analysts, what is the data telling us?
Does mood lead or lag sentiment? Can we look at our data and forecast an improvement in happiness? Or can we look at mood and predict an increase in borrowing. What are the lessons from our analysis?
Mike Ebstein is Founder & Principal at MWE Consulting