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Why are businesses happy but consumers are not? Do businesses and consumers care about different things? Is the government only focusing on making businesses happy and not consumers? When the pandemic hit, both business confidence and consumer confidence hit new lows but since then, whereas businesses have become more and more optimistic, consumers remain below the neutrality level of 50. For instance, the difference between the two was really stark in the previous wave for the respective surveys (read: “Asked and (un)answered”, Apr 6, 2021).

Confidence surveys are based on gut feelings. The questions are designed so that respondents can give an instant response based on their sentiments and observations which are typically innumerable. The SBP’s methodology to gauge consumer and business sentiments is also similar—both participants are asked their perceptions on economic conditions and inflation (aside from other questions) and as a result the responses are comparable.

Why is there a difference then? One can theorize. It can be argued that businesses are looking at market signals and tend to adjust their expectations based on international and local trends—and what they expect the government would do over the next few months which would impact their business—while consumers are typically looking at their own wallets and expectations of their own wages. For instance, if businesses are expecting the Central Bank to increase the policy rate, they may hold less optimistic sentiments toward the future as their cost of borrowing will increase. Consumers however will not feel the impact until they observe a slowing down economy. But here, we are assuming that businesses and consumers either do not have the same set of information or are likely to assign different value or weight to the information at hand.

While both consumers and businesses make choices based on the market conditions surrounding them, businesses simply may have more information. That is not an impossible assertion. One can further argue that business confidence always leads consumer confidence as businesses provide consumers with employment. When businesses are producing more, and utilizing more of their capacity, they hire more people and give higher wages to their employees which makes consumers happy too. That’s the equation. But one could easily counter that by saying, businesses need consumer spending to pay for the goods they are producing so one can simply not ignore the other end of the cycle. If both economic agents should move in tandem, why are they not?

The GDP has been forecasted to touch 3 percent this year, projected to hit 4.8 percent next fiscal year. The current account is in surplus and interest rates are keeping intact. This is business-friendly but there are more business-friendly policies than ever before. The construction industry was rewarded a bountiful amnesty package with sweet incentives that would allow them to invest in property and not have the FBR knocking on its door asking uncomfortable questions about where they got the money from. On top of that, there is a 90 percent waiver for builders that want to construct low-cost housing. The launch of the Naya Pakistan Housing Program is also incentivizing the construction industry, removing regulatory bottlenecks and giving them priority approval and so on. New hydro power projects, CPEC related infrastructure projection, construction of SEZs are all major demand drivers for the industry.

Construction then feeds demand into other small and large industries including cement, steel and hundreds of other manufacturing and services sectors for whom future business looks really promising. The government has laid out the carpet for new automobile manufacturers, electric vehicle investors, mobile phone assemblers and businesses in general who want to attain expansion related financing (in the form of TERF). Several other refinancing schemes are running parallel.

What about consumers? Consumers are facing high inflation and sticky wages. In a scenario where wages are moving down or remaining stagnant, while prices are increasing, consumers’ buying power gets more and more squeezed. Real wages decline. Inflation affects businesses too if their costs of production goes up. They then have to decide whether to pass on the effect of their rising costs onto consumers and risk losing their business (that comes down to how sensitive consumers are to prices and how necessary the good is to consumers) or absorb the cost and experience a squeeze in their margins. There is a trade-off. But consumers are losing from both sides—they are not seeing an increase in income and also have to spend more money to purchase the same goods they did earlier.

Evidently, there is a lag in business and consumer confidences which itself has a rising trend (see graph) because consumers are simply not experiencing the same economy that businesses are. Now consider how the situation is for folks living at the lowest income levels of the economy who experienced job losses and massive drops in wages during the pandemic. Only some have recovered from their circumstances. The formal economy may be expanding by 3-4 percent, but if people have to spend more to maintain their current living standards, and their salaries/wages are not growing— are we really out of the woods?


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