Just how relevant are business confidence surveys?
Before I get into the meat of this, let me declare an interest. A little over a month ago I presented at the Quarterly Economic Survey breakfast session for the NW Chamber of Commerce. The QES has been going for several years now and is a national initiative by the UK chambers of Commerce to get a sense for the ‘pulse’ of the UK economy. Each region publishes its results and here, in the North West, they do this at a business breakfast networking event held at Preston College at which yours truly gives an overview of what the survey is, is not and might be telling us. Some of you may have taken part in completing the survey or turning up to the business breakfast to listen to the results. Thank you to both sets of people.
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A core set of questions are asked each time (quarterly – funnily enough) and from this data a picture emerges regarding the sense of health, vigour, confidence or what have you in our local regional economy.
But, I must confess, when attempting to divine what significant or meaningful trends, patterns or messages we can glean from the data on can sometimes feel a little like an ‘end of the pier’ fortune teller who stares intently (-usually a little too intently) at the chaotic confusion of damp tea leaves at the bottom of the still warm cup and sees hints that the person whose tea it was will meet a tall, dark stranger at some point in the (-usually unspecified) future.
To put it another way, are we truly seeing patterns in the data or is it all just ‘statistical noise’ upon which we lay our own vies of the world? And this is not just a challenge for the QES surveys; it applies to all economic data. What, for instance, does it mean for the average man or woman in the street, or the average business, that following the UK’s EU referendum vote the FTSE100 seems to be enjoying a somewhat heady burst of activity. Many would say – “Not much!”.
Just as one swallow does not make a summer, so one source of data certainly doesn’t make for a complete picture of the state of the economy – regional or otherwise. In fact, not only can such isolated pieces of data provide an incomplete view of the wider world, they can sometimes be downright misleading.
Which is why It is interesting to reflect upon a speech made earlier this year by Martin Weale, an external member of the Monetary Policy Committee. He has been in the news recently because of a volte face he has, apparently performed, regarding whether the economy does or does not need a ‘new stimulus’ – is ever lower base rates. But this isn’t why I mention him. It is because of his speech “What’s going on? Uncertain data and uncertain outcomes”.
In it he considers the range of data sources used by the BofE for its decision making processes (- and the QES is one such source) and he concludes that “…[busienss] surveys on their own do not do very well as current indicators…[of the state of the economy]..”. One big reason for this is that they fail t cover a hugely significant part of our overall economy – that is, the role of the State as producer, financier, consumer and employer.
That doesn’t mean that we should throw babies out with bath water when it comes to business surveys. But it does mean that we shouldn’t pin all our economic hopes and fears onto one, or even several, sources of data – no matter how regularly and robustly it is collated. GDP anyone??
The economic performance of a region, a country, a continent or the world is too multifaceted, rich and stimulating to be boiled down to a few limited statistics – free market capitalists who think that all we need to do is control inflation and everything else will work out fine – take note!
But, let’s get back to the North West QES. This conclusion will come as no surprise to those who have attended the breakfast briefings. We have said every time the data has been published that it must be considered alongside not only a range of other statistics, but also each individual’s own day to day experience.
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