The consumer sentiment data released today will be another noisy signal on the economy for the same reasons that plague the business survey data. If around 20% of the economy is generating the vast bulk of growth with the remaining 80% expanding at a sub-trend pace, then a survey that equally-weights the sample of respondents is going to give you inherently misleading information.
For example, the NAB business survey was sitting around trend until yesterday's numbers. If the NAB survey is systematically underestimating Australian economic growth because of the unusual situation where growth is very narrowly based (while in its survey design NAB is giving excessively high weights to lower growth sectors), then one might expect trend NAB survey numbers to correlate with above-trend economic growth outcomes. And what do you know! That is precisely what we have observed over the last 12 months. So any systematic fall in the NAB survey data to below-trend levels likely means the pulse of Australian economic activity is returning to trend (3%-ish per annum) in contrast to the above-trend rate seen recently.
Similarly, if you are polling Australian consumers and, generally speaking, 20% have exposure to the high growth industries while 80% are stuck in low-growth sectors, and the survey is equally weighting these responses, you would expect to get a result that is quite divorced from our aggregated economic reality. In an email to a friend yesterday, I wrote:
The single biggest mistake people make in economics/finance is to abstract out from our personal circumstances and assume everyone else is having the same experience. Our personal economic conditions are typically a poor proxy for a complex economic system like Australia’s.
