Why so glum?

08/08/2019

The quarterly unemployment rate is down to 3.9%; and the official cash rate is at an historic low of 1%.

Yesterday’s GlobalDairyTrade was down 2.6%, the fifth drop in the last six auctions but no-one’s suggesting the milk payout will be lower than $6.

Horticulture and wine are getting healthy returns, arable incomes are reasonable, wool is dismal but the outlook for sheep meat and beef is positive.

But Business confidence is down to -44.3% :

. . .That was the worst reading since August last year, when the index was at -50.3. Employment intentions slumped (-5.5 vs 0) as firms sought to cut jobs, capacity utilization weakened to its lowest since 2009 (0.4 vs 5.3), and activity outlook (5.0 vs 8.0) and export expectations (1.4 vs 5.3) deteriorated. In addition, profit expectations fell further(-16.3 vs -12.5), while investment intentions turned to negative (-0.3 vs 2.5). . . 

And consumer confidence is also gloomy:

The Westpac-McDermott Miller consumer confidence index in New Zealand fell to 103.5 in the second quarter of 2019 from 103.5 in the previous period. Households became increasingly worried about conditions in the global economy over the next five years (-3.5 points to 11.9); and the number of households who think now is a good time to purchase a major item has fallen to a two-year low (-5.5 points to 17.9).  . . 

Why are we so glum?

Today’s historic cut to the Official Cash Rate down to just one per cent sounds a dramatic warning that the New Zealand economy is slowing and the Government needs to get serious about growth, National’s Finance Spokesperson Paul Goldsmith says.

“The Reserve Bank’s cut came with the message, ‘Indicators of growth remained weak or weakened further over the past few months’.

“The only time in the history of the OCR there has been a cut of this magnitude have been after the 9/11 terrorist attack, during the Global Financial Crisis, and after the Christchurch earthquake.

“Of greatest concern is the absence of any clear growth plan from this Government.

“Budget 2019 was devoted almost exclusively to spreading national wealth, with very few policies to grow the economy. The most expensive Budget commitment to transform the economy was a $1 billion subsidy for rail. There was little else.

“Instead of ramping up infrastructure investment, the Government has stopped or postponed a dozen roading projects which were ready to get underway, and replaced them with projects that aren’t ready to go, and won’t be for a lot time yet’.

“We need to move beyond policies that add costs to the business and drive down business confidence.

“National would revive the economy by having a plan for growth which would see confidence bounce back and the economy gain the strength it’s lost under this Government.”

There is no doubt what the government is doing and not doing are a large part of the problem.

In spite of at least reasonable returns for almost all primary products farmers feel under-siege with very real concerns about the costs and restrictions the government will impose on them.

Other businesses have similar worries, not helped by the latest confidence-sapping message sent by the Prime Minister’s ordering Fletchers to not build anything until the Ihumātao dispute is settled.

Then there’s the on-going argument over the letter Associate Transport Minister Julie Anne Genter is refusing to release and the questions that raises over the part she played in delaying Wellington transport plans.

Concerns over this aren’t helped by claims from Wellington City Councilors that the Green Party confidence and supply agreement would have been put in jeopardy if a watered down Let’s Get Wellington Moving wasn’t accepted.

All of this points to government instability and is compounded by Winston Peters’ latest game playing over requiring a referendum on changes to abortion law.

When interest rates were already so low, it is unlikely the larger than expected drop in the OCR will have much impact on the productive economy when there are so many reasons pointing to the need for caution.

And while low interest rates help borrowers they punish savers.

All in all there is little to give anyone confidence anything is going to get better soon and plenty of reasons to doubt the government has the plans and policies to help.

And now the Reserve Bank has dropped the OCR, it raises the question of what happens when, as is likely, economic conditions get worse.


Consumer confidence at 4 year high

17/12/2013

The good news continues:

New Zealand consumer confidence rose to its highest level in about four years in the fourth quarter as kiwis turned positive about their own finances and more optimistic their own circumstances will improve in the year ahead.

The Westpac McDermott Miller Consumer Confidence Index rose to 120.1 in December, the highest since the third quarter of 2009, from 115.4 in the September survey. Asked about their own financial situation, of those polled a net 0.4 percent said things had improved, up from -9.4 three months ago. Those expecting further improvement in the next 12 months rose to 12.1 from 9.6.

“With the construction sector ramping up, jobs on the rise, house and share prices soaring, and dairy prices sky high, we would have been surprised to see otherwise,” said Dominick Stephens, chief economist at Westpac Banking Corp. “Households haven’t been this positive about their own finances, or optimistic for the wider economy, in many years.”

The survey results come less than a week after the Reserve Bank gave a clear signal it will start raising interest rates early next year in the face of increased momentum in the domestic economy. The Westpac survey follows the ANZ-Roy Morgan consumer confidence index last week, which recorded the highest reading in almost four years. Business confidence is near a 15-year high.

“If any more evidence was needed that the New Zealand economy is picking up, this is it,” Stephens said.

 The Westpac survey shows the present conditions index improved to 113.1 from 107.6, while the expected conditions index climbed to 124.8 from 120.5

The one-year outlook for the economy as a whole showed the biggest gained between the third and fourth quarters, surging to 27.8 from 14.1. The five-year outlook slipped back to 34.4 from 37.8.

Those deeming it a good time to buy a major household item rose to 25.8 from 24.7.

The survey of 1,569 people was conducted between Dec. 1 and Dec. 10.

A vehicle dealer told me that last year was a good one and this year is even better. National sales are up 10% and North Otago sales are up 40%.

He credits irrigation with making the difference here.

He said it’s not just farmers who are buying new vehicles. Trades people who are benefiting from the building which has come in the wake of the irrigation are too.


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