Business confidence up ‘dramatically’
Business confidence increased by double-digit levels while consumer confidence inched slightly higher for the third quarter of 2022, reflecting the reopening of the economy.
Business leaders from the financial, entertainment, hardware and tourism sectors endorsed the optimism captured in confidence survey on Tuesday amid expectations of investment.
Business confidence at 147.4 points in the third quarter grew by 18.3 per cent over the second quarter. Consumer confidence at 162.6 points in the third quarter increased by 4.2 percentage points over the second quarter.
“We have apparently come out of the pandemic and its challenges, and there is a considerable degree of optimism going forward. The third quarter data points in that direction,” said Don Anderson, executive chairman of Market Research Services Limited at an online press conference on Tuesday during the release of the JCC Business & Consumer Indices. Anderson’s firm conducts the confidence surveys on behalf of the Jamaica Chamber of Commerce and the Jamaica Conference Board.
The rise in business confidence, relative to the second quarter, reflects the first time in over 20 years that the index spiked due to macroeconomic variables. On two other occasions, in 2007 and 2011, the business index spiked due to general elections, said Anderson.
“This is an anomaly, a dramatic change, over the period. And what are the factors? COVID-19,” the pollster said. “Now they can breathe a little bit easier now that they see COVID-19 ending.”
The JCC indices have tracked the quarterly fluctuations in consumer and business sentiment since 2001. The fieldwork for the latest quarter spanned July 1 to September 15 and included 648 households and 110 business respondents.
For consumers, half the respondents expect their household income to increase compared to one-third a year ago. The rise in optimism resulted in more persons being willing to take vacations and purchase cars, at one-third of respondents compared to one-quarter a year earlier.
This optimism, however, doesn’t extend to home purchases, which are seen as longer-term investments.
“When you look at home purchases, they fell. But in terms of vehicles and vacations, consumers are indicating a greater propensity. It is based on changes in household income and the standard of living. So they are making plans,” Anderson said.
Consumer confidence remains below pre-pandemic the record. The index rose to 158.5 points in the September survey, up from 140 points in the similar period in 2021, but underperformed the record 180.2 points in 2019.
One-third of consumers expect economic conditions to improve as the economy opens up and the pandemic wanes. Comparatively, 23 per cent or fewer consumers expect business conditions to worsen due the high cost of living, high crime, ineffective governance, and the lack of employment. That said, inflation continues to weigh on consumer optimism.
“The main challenge is that they are facing headwinds of increased prices and they expect it to continue,” Anderson said.
He added that businesses are beginning to “breathe a sigh of relief” and they see an eventual end to the pandemic which provides more certainty to plan. One-quarter of businesses expect an improvement in conditions, up from 14 per cent a year earlier.
Anderson said nearly two-thirds of businesses want to invest now, compared to half of the businesses a year earlier. In a related category, just over half of businesses expect business conditions to improve in the next 12 months. The top reasons cited included expected tourism rebound, and expected economic recovery.
Roughly 13 per cent expect business conditions to worsen, citing cite crime as the top factor, followed by a sluggish economy, foreign exchange instability, inflation and reduced disposable income.
The top sectors reflecting bullishness are finance, insurance and real estate, followed by farming and then transport storage and communication. Construction and installation sector plans for investment are still high but waned slightly in the year.
“Business confidence being up will translate well for the equities market,” said Managing Director of the Jamaica Stock Exchange Marlene Street Forrest, who was part of the panel discussion at the JCC online event.
The rise in interest rates to fight inflation has negatively impacted on the trading multiples of the stock market, which led to declining prices of equities on the main market of the exchange. Street Forrest said, however, that increased confidence will act somewhat as a counterbalance to higher interest rates.
“You can see that there is a definite correlation between consumer and business confidence. It will lift all boats and should see an improvement in the composite index next year,” she said.
The overall market is down nearly nine per cent year to date.
Solomon Sharpe, CEO of Main Event Entertainment Group, said that higher confidence positively impacts on the entertainment sector and that a lot more opportunities are emerging with the opening up of the economy, as demand has increased for concert equipment.
Main Event, which is listed on the junior stock market, supplies visual and audio equipment to stage concerts and weddings.
Sharpe said promoters are paying suppliers like Main Event bigger fees to stage events, due to inflation, and passing on the cost to consumers. Patrons continue to support such events despite the erosion of their disposable income by inflation, he added.
It’s part of the reason Main Event wants to expand.
“I wish I had low-interest money now to expand Main Event, because I feel so confident now,” said Sharpe at the JCC confidence indices forum. “We are looking for $500 million of low interest money. So we are going to be aggressive,” he said.
Marcus Richards, executive vice chairman of Hardware & Lumber Limited, said that he’s more concerned about geopolitics than inflation. Russia invaded Ukraine in February, which led to commodity shortages and price spikes, atop the shipping delays that had previously emerged with the 2020 onset of the pandemic.
Over the last few months, H&L has seen a slowdown in its foot traffic. There’s been a “contraction in retail spending” and a shift to other elements and segments, Richards noted. That said, H&L still plans to invest.
“We are making investments, but the size and scale are smaller. We are trying to become more agile to become more efficient and respond to changes in consumer appetite and behaviour,” Richards said.
President of the Caribbean Hotel and Tourism Association, Nicola Madden Greig, expects a double-digit rise in arrivals across the region, relative to a year earlier.
“The fourth quarter looks like we will be up 15 per cent over the 2019 record year,” she said.
“We have shifted from recovery to growth,” said Madden Greig, who expects the growth to sustain itself. “We anticipate that Jamaica and the region will be able to retain the business from the US market and we have airlift throughout the region from the other main markets.”
Cruise ship passenger arrivals remain challenged, however, due to reduced ship calls, according to Madden Greig.