Article sponsored by NewzEngine.com
Analysis by BNZ Chief Economist Tony Alexander.
[caption id="attachment_3709" align="alignleft" width="150"] Tony Alexander, BNZ economist.[/caption] Two weeks ago I listed reasons why despite the dairying downturn growth in the NZ economy would remain good especially compared with other countries and this would limit scope for lower interest rates, support jobs growth, and keep the NZD from falling much. This week has brought a surge in others saying the same thing. One trigger was the better than expected labour market numbers yesterday showing a fall in the unemployment rate from 6% to 5.3% and 0.9% jump in jobs in the December quarter despite dairying weakness. Another was the jump in net migration over calendar 2015 to 65,000 or 1.4% of the population from a negative flow during 2012. Regarding interest rates the Reserve Bank Governor yesterday reminded everyone that the RB concentrates not just on the headline inflation rate of 0.1% when setting policy, but core inflation which is currently near 1.6% or so, and issues of financial stability and avoiding volatility. His comments have reduced growing expectations of another rate cut and helped the NZD to end this afternoon two cents higher than a week ago against the Australian and US dollars.Compared with a year ago employment in agriculture was down 0.6% but in construction it was up 13.4%, real estate 10.4%, and all industries 1.4%. But yet again there remains zero evidence that the pace of wages growth in New Zealand is accelerating as one would expect to have happened by now were it not for the role of the global financial crisis in changing the way things link economically these days. The wages measure which I use, an analytical series created by Statistics NZ where an attempt is made to strip out changes in work quality and quantity, rose 2.7% over 2015. This was the same pace of change as the year to September and statistically-speaking unchanged from the 2.6% pace of 2014. The rises in 2012 and 2013 were both 3.0% and 2011 was 3.2%. But with inflation at 0.1% that means a 2.6% real wage rise which is brilliant! Hence strength in consumer spending. This means that the Reserve Bank will struggle to look at the fall in the unemployment rate and conclude that wages growth is about to take off. Thus the door remains open for another cut in interest rates though our view is still that they don’t want to cut and will just get by without doing so. This is the case even allowing for the further 7.4% fall in the average dairy auction price this week which raises the chances of Fonterra having to cut this year’s payout forecast again. In fact on Wednesday the Reserve Bank Governor was at pains to stress that although headline inflation is low at just 0.1%, the Policy Targets Agreement requires the RB to take into consideration a lot more than just the main CPI reading when setting monetary policy, that price shocks stemming from the likes of oil price changes can be “looked through”, and that core measures of inflation are close to the mid-point of the target band. Those comments dashed some optimistic expectations out there of another rate cut soon and coming on top of the strong jobs numbers caused a spike in the NZ dollar toward 66.5 cents last night. To repeat, our currency is well supported by non-dairy exports doing well, the domestic economy being assisted by strong construction and migration, and now reductions in expectations of tighter monetary policy in the United States plus the desperation-driven cut in Japan’s key rate to -0.1%. Housing Dwelling supply continues to move upward in Auckland while falling away rapidly now in Christchurch. In the three months to December the number of consents issued for the construction of new dwellings in Auckland was ahead by 24% from a year earlier while for Canterbury there was a decline of 24%. For all the rest of New Zealand there was a rise of 38%. Regional house building is rising strongly which will make boosting Auckland house supply even harder as builders doing the same job for the same wage in the regions will face far lower housing costs for themselves than working in Auckland. For all of 2015 Auckland consents totalled 9,251 which was a strong 23% rise from 2014 and the highest annual total since June 2005. This is good news for Auckland and hopefully this year will bring another 23% rise to 11,400. But while dwelling supply outside Canterbury is growing well, so too is demand. Adding to:
For the full analysis, Download document (Unemployment Rate The Lowest Since 2008 I started the Overview this year with an article noting that although there are worries offshore we have plenty of things helping support growth in the New Zealand economy, limiting the chances of further interest rate cuts, and keeping the currency well supported. These were the themes repeated strongly this week by many commentators following the good labour market data yesterday and by the Reserve Bank Governor as well. Yesterday we learnt that during the last quarter of 2015 there was a good hike in job numbers around New Zealand of 0.9% or 22,000 people. This followed a 0.5% fall in the September quarter so the result does have an upward bias and it would be best to say that on average last year job numbers grew 0.3% a quarter and this pace was close to sustained in the second half of the year. The unemployment rate interestingly and completely against expectations fell away to 5.3% from 6% in the September quarter and 5.8% a year earlier. In fact the rate is now the lowest since 4.6% at the end of 2008. The decline partly reflects some people leaving the workforce taking the participation rate down a tad to 68.4% from 68.7%. Nonetheless, the result remains a good one which is supportive of good consumer sentiment and household buying.
- the pent-up demand from those people who have after seven years finally given up on expecting house prices to collapse,
- buyers edging toward minimum deposit requirements, and
- foreign buyers getting their heads around the very simple bank account, IRD number and bright line text rules,