Retail sales data out this morning tell us that spending is growing at an above average pace. But areas of greatest strength are where prices have been falling. Consumers are seeking out bargains in an environment of low wages growth not yet being offset by rising employment and the fastest population growth (1.5%) in a decade.
We also take a quick look at dairying and combat some of the more sensationalist talk recently about the sector facing grim times with analysis showing this season’s over 30% fall in likely payout is consistent with a six year pattern of such declines.
This week we have seen dairy prices fall another 8.4% yet the NZD has held up because most news for the rest of the world from the Middle East to the UK, Africa, Europe and China has been negative. Locally the NZ unemployment rate has fallen to 5.6% from a peak a couple of years ago of 7.2% but there remains very little evidence still that wages growth is accelerating. This will come but clearly with still a lot of bad news offshore and some extra people becoming available from Australia employees remain more focussed on job retention than gaining extra wage increases.
I am back from leave now so here are my latest thoughts on the economy following a period of some weaker than expected numbers but a near universally expected hike in the official cash rate again this morning. Further rate rises will come but not for a very uncertain time between December this year and June next year.
This week we take a quick look at the monthly migration numbers showing booming net inflows. The housing implications are fairly obvious and although the boom will make the Reserve Bank more inclined to raise interest rates the ongoing strength of the NZ dollar is an opposing force. The RB will therefore probably pause after the expected July rate hike and not start up again until December.
In the Housing section we offer a new way of looking at why we look at Auckland, continue to move there, and therefore keep house prices there rising at a faster pace than the rest of the country.
The NZ dollar meanwhile has strengthened further this week and our expectation remains that it is going to stay high. After all, this week we saw the release of weaker than expected GDP data in the United States and manufacturing gauges in Europe. Yet in China the manufacturing number was good and that actually adds to NZD support given our high and rising exposure to the Chinese economy.