Fall in confidence isn't surprising
IN his review of the results of the Jamaica Chamber of Commerce's Business and Consumer Confidence Survey, Professor Richard Curtin said that the euphoria after the election dissipated in the second quarter of 2012.
Consumer confidence posted its largest quarterly decline on record of a negative 49.1 points, to 111, erasing almost the entire gain of the first quarter.
In itself, the fall was unsurprising, as the rise in consumer confidence of 55.9 points in the previous quarter following the election was also the largest on record, suggesting that as occurred in the previous election in 2007, consumers may have unrealistic expectations of the economic benefits from a change in Government. However, just as the rise was more intense than in 2007, the fall has been faster, possibly suggesting a much shorter "honeymoon" period.
Just three months ago, the survey notes, 47 per cent of all Jamaican's expected the economy to improve, with half crediting the new government and the new jobs programme. In the latest survey, just 22 per cent expected the economy to improve, with three times as many Jamaican's expressing concern over current economic policies, as thought those policies were beneficial. The high hopes for the economy have vanished, with prospects for the economy no better than before the election. As Professor Curtin notes, although expectations are now the same as before, failed policy expectations exact a heavy cost in terms of people's confidence in the ability of Government to take effective action.
The survey reveals the current jobs situation is dismal, with 90 per cent of Jamaicans reporting that jobs were scarce and hard to get. Whilst this is not new, the 26 per cent who expected future job gains in the year ahead were less than half the 57 per cent who expected job gains in the first quarter, showing a dramatic collapse in expectations. Expectations of income gains and purchase plans (for cars, vacations and houses) all fell; suggesting a significant slowdown in consumer spending in the year ahead.
The decline in business confidence, from 123.7 to 91.8, whilst still large, was more muted, reflecting the fact that, as is often the case, the rise in business confidence in the first quarter had also been much slower than for that of consumers. However, the proportion of firms expecting the economy to worsen more than trebled, from 17 per cent to 52 per cent, the highest number of firms to hold negative views since the last recession, but still somewhat below the all-time high of 71 per cent in the crisis period of 2003. Significantly, the survey data reveal that last quarter there was a "cautious hope" that government policies would stimulate economic growth, but most firms have now concluded that the initial impact of these policies would have adverse consequences. Profit expectations declined significantly, the result of an expected weakening of sales and higher taxes.
Most significantly, for future job growth, investment plans remained depressed. Although declining by a smaller margin than any other component of the survey, reflecting firms already "cautious" approach, it also reflected a halving of current profitability, with just 11 per cent reporting a better than expected return on their investments, versus 20 per cent in the first quarter.
The survey information corresponds to the anecdotal reports of firms, some of whom reported a slight bump up in sales in the first quarter following the election, followed by a weaker second quarter. Both surveys were undertaken by Jamaica's leading pollster, Don Anderson, between May 28 and June 18 so they would have reflected the views of both business and consumers on the Budget.
It is also worth noting that the highly internationally regarded University of Michigan survey of US consumer confidence prepared by the same Professor Richard Curtin (who has personally analysed Jamaica for the past twelve years) also fell in July on the back of expectations of slower job growth and higher food prices. However, the competing Conference Board survey of US consumer confidence, released yesterday, increased marginally for the first time in five months on lower gas prices. It is likely, however, that the growth slowdown in the US and the ongoing crisis in Europe have added to what Curtin describes as the already negative "domestic headwinds" of the Jamaican economy.