The full pdf version of the Weekly Overview is contained here.
Weekly Overview January 21 2016
Thursday January 21st 2016
Welcome to the first Weekly Overview for 2016. The year has started fairly dismally for sharemarket investors and businesses exposed to minerals commodity prices. There has been record early-year weakness in some share indexes, and oil prices are almost in freefall as supply booms, dragging down other energy-related prices by association.
This is the second to last Weekly Overview for the year. In it I take a look at the decision by the Reserve Bank to cut the cash rate another 0.25% but essentially rule out any further cuts. This makes sense as although inflation is low at 0.4% and not set to rise much, the ability of lower interest rates to boost inflation is limited these days and lower rates simply imply even faster growth in home lending and house prices.
In this week’s Overview I take a look at the implications for someone approaching or even in retirement of sustained low returns on conservative assets like term deposits, rising life expectancy, the coming slowing in labour force growth once the current migration boom eventually eases off, and the social connectivity which continued employment can bring.
A couple of very large numbers made their appearance this week. One came from the International Visitor Survey which showed a massive 38% rise in spending by visitors to New Zealand over the past year. The tourism sector is in very good health and this is one of the important offsets to weakness in the dairying sector which will keep overall economic growth up and discourage the Reserve Bank from contemplating rate cuts beyond probably one more 0.25% reduction.
This week I had the pleasure of spending a couple of days in Christchurch and start the Weekly Overview discussing how construction of low rise office buildings has soared since I last had a decent walk around a year ago. In two more years the CBD will look amazingly different from the building site it is currently.
This week’s Overview is just three pages long so its not going to set the world alight. I concentrate on the important issue of making sure you don’t rush to form conclusions about things based upon just one month’s observations. You need at least three months worth of data to say anything really meaningful. If you look at just October you may conclude that house prices are falling in Auckland. But if you smooth over three months what we have instead is a trend of slowing house price rises from the pace of earlier this year.
In this week’s Overview I make a quick note of the weaker than expected employment numbers released yesterday along the lines of them reflecting the collapse in business sentiment early this year. Now that sentiment is back up again employment growth will resume.
We’re into a new financial year for the BNZ and being back in NZ after a couple of weeks offshore I am restarting the Weekly Overview after putting it into abeyance in January. On average each issue will be shorter than in the past but I’ll write a bigger summary and make it abundantly clear whether I think there is something truly worth reading or its just filler.