July discussion here.
Own activity expectations moved back into positive territory, business confidence is at its highest rate since November, and inflation expectations are at record levels (3.79% – even higher than the expectation numbers reported by the RBNZ for the September quarter).
This is a surprising result for the market, and makes our blogs pick of an economic recovery from September and annual consumer price index growth of 5% in September both seem a little more likely 😉
Lets ask if these numbers describe any of the issues we mentioned in July:
“Construction will continue to suffer, but if fuel prices continue to improve, could we see as sudden an upswing in retail as the downswing we saw over the first half of 2008?”
Well today’s figures strongly suggest that retail is improving – with own activity now back in positive territory. However, capacity utilisation remains low – implying that although activity has picked up in August it still remains at low levels. Remember that the volume of retail sales were at their lowest level since December 2006 in June – so they have some way to recover yet before the industry is “strong” again.
“Secondly we have the employment figures. Now, I would expect most of the loosening to be occurring in wholesale and retail trade as well as construction”
Well the labour market figures didn’t give us any of this over the June quarter – turns out employment has been flat rather than falling. As a result, it is not surprising that the current employment numbers appear soft – if anything it is consistent with the idea that firms do NOT WANT TO EXPAND employment, but are scared to reduce employment given the difficulty they have had getting labour. Watch out for movement in the hours worked series – as this will lead any fall in employment looking forward.
Finally, stealing a paragraph I wrote last time and updating it for the latest information I can say:
Pricing intentions and inflation expectations are bad. The inflation expectations measure in this survey is A LOT smoother than the RBNZ measures. As a result, the fact that it is has crept up to 3.79% must make the RBNZ feel nervous!
For the short term outlook, I am still picking annual CPI growth of 5% in September (even with the fall in petrol prices) and I am still picking economic activity to turn up in September (although this does not imply that I think growth will head back to 3% in the short-term). Don’t expect these picks to be accurate, but I have to pick something after all 🙂
If you need a number for my September pick, say retail sales up by 5% on a year earlier (nominal) or GDP growth for the quarter of over 0.5%. WHEN I am wrong – feel free to rub it in my face 😉