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Monthly Economic Indicators

Executive Summary

  • Domestic demand is looking more positive, especially compared to other advanced economies. This contributed to an increase in the NZ dollar.
  • Retail trade volumes surged in the December quarter, helped by a seasonal rise in fuel sales, falling imported durable goods prices and rising housing activity.
  • The labour market appears weaker than anticipated, although the consequences for economy-wide hours, earnings and tax are not as significant.
  • The global outlook has continued to improve, although this trend is not universal.

GDP growth appears to be picking up in New Zealand, driven by housing-related activity. The December quarter is expected to be particularly strong, especially compared to many advanced economies that experienced contractions in the quarter. As a result of this acceleration, markets priced in almost a 25 basis point hike in the OCR over the next year which, when combined with loose monetary policy in other advanced economies, helped push the NZ dollar to a post-float high on a TWI basis mid-way through February. Interest rate expectations and the exchange rate eased at the end of the month on some weaker data and renewed global nervousness.

The lift in domestic demand has had a large contribution from housing. The strong retail sales result in the December quarter, where underlying volumes rose 1.5%, was driven by housing-related components. Hardware store sales were especially strong as a result of repairs and rebuilding in Canterbury and household contents had significant increases, likely in relation to increasing housing market activity. Lower prices for imported goods also contributed to the result, helped by the appreciation of the NZ dollar. In addition, dwelling consents point to a continued acceleration in the annual growth of residential investment.

Labour market data continued their recent weakness in the December quarter. In the Household Labour Force Survey (HLFS), employment and the labour force participation rate suffered significant falls. This seemed at odds with other labour market indicators, but these other indicators would not pick up a fall in self-employment that partly drove the fall in HLFS employment. As the HLFS gives a more complete picture of employment, the labour market appears weaker than we expected. The softness in the HLFS has not had significant implications for economy-wide hours worked, earnings and PAYE tax revenue, as the fall in employment was concentrated in part-time and young workers who work fewer hours and are paid lower wages and salaries on average. Labour force participation of young people has continued to fall recently as more undertook further education and were not able to find work.

The global outlook has improved slightly in developed countries, although economic activity remains weak. However, emerging economies appear to be rebounding steadily. This month’s special topic looks at New Zealand’s Net International Investment Position (NIIP), suggesting it could be improved by 5-10% of GDP with more complete measurement of assets.

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