Recovery at last?

Economic activity in the December quarter  surged to the best level since mid-2007 according to the New Zealand Institute of Economic Research’s Quarterly Survey of Business Opinion.

Businesses are more optimistic (+19% from -1%, seasonally adjusted). The trading activity indicator for the December quarter also surged to the best level since mid-2007 (+8% from -4%, seasonally adjusted). This suggests annual GDP growth for 2012 will be above 2%.

“There are encouraging signs of a strengthening economic recovery. The latest bounce is concentrated in Auckland, and Canterbury to a lesser extent,” said Shamubeel Eaqub, Principal Economist at NZIER.

Subdued labour market

The latest pickup is not yet flowing through to the labour market. New hiring remains subdued and labour is getting a little easier to find outside of Canterbury. This is surprising as a recovery in activity tends to be accompanied by more jobs and increasing competition for labour that raises wages. This part of the recovery remains absent. It may be explained by reduced working hours during the recession, which are now returning to more normal levels, rather than through increased hiring.

Investment intentions, while positive, are also low compared to what we normally see in a recovery phase.

Little inflation

Capacity pressures are intense in Canterbury, but there is little pressure in the rest of the country. Firms do not intend to raise prices much. Consumer price inflation will remain low. Margins remain under pressure, but profits are beginning to lift on the back of better sales volumes.

RBNZ to hold interest rates steady

The RBNZ will keep interest rates on hold for some time. The QSBO shows the beginnings of a recovery, but still very low inflation.

nzier 2

One quarter does not a full recovery make but it is a long awaited sign of improvement.

The Christchurch rebuild is having a positive impact further afield than Canterbury.

Building tradespeople I’ve spoken to in Oamaru in the last week say they were busy at the end of the year and busier still this year.


3 Responses to Recovery at last?

  1. so Auckland, where a third, nearly half of our population live, has has come out of recession? Your interpretation of this graph would suggest so. So where are the jobs in Auckland?

  2. homepaddock says:

    The commentary above says that the labour market is still subdued and : “It may be explained by reduced working hours during the recession, which are now returning to more normal levels, rather than through increased hiring.”

  3. JC says:

    If you have a look at this spaghetti graph showing unemployment in post war US a couple of things jump out..

    1. The Great Recession is by far the worst
    2. Its also by far the longest
    3. Have a look at other recent recessions.. there is a pattern of slower recovery in employment.

    Better brains than mine have suggested that recent recessions have been used to downsize the workforce and bring in more automation and robots to do the grunt work of making and assembling.. hence unemployment is lagging as the economy recovers.

    Even bigger brains (like Walter Russell Mead) are suggesting that this time we are shifting from the manufacturing age to the true start of the information age where the new jobs will go to the more computer and technology literate, ie, those who can do stuff that robots can’t. Mead also suggests its the end of what he calls the “Blue Social Model” in America.. that post war period of social advancement which saw the State taking over many of the responsibilities of individuals and families. He suggests we are in a long period of adjustment as Western nations start to realise the State cannot collect enough revenue to support its social programmes.

    There are plenty of signs Mead is right in the calls for increased age before qualifying for superannuation, Charter Schools for those failing the national schools programmes, restrictions of medicines and operations and increased use of computers to access Govt information and programmes. We are going to became a much more “do it yourself” society that also looks after itself.

    Another sign relevant to Dave’s question is that back in the 1950s manufacturing was 30% of the NZ economy, but over the last decade that has been no more that 10-11% and all the calls from lefty politicians to support manufacturers with a lower exchange rate won’t improve that percentage. Longer term, those denizens of South Auckland will have to upskill and educate themselves to something ahead of the robots or be forever unemployed or working the bottom end of the service industries.


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