July NBNZ business outlook

I don’t usually write about his, as I don’t actually have access to the historical numbers, but I thought that this time the July Business Outlook was worth a look.

Three main things stick out of it like an eyesore:

1. Own activity expectations are down to -8.2%, a bad result. This is mainly to do with a negative outlook for the construction industry.
2. Employment and unemployment measures have deteriorated – indicating that the labour market is loosening.
3. Pricing intentions and inflation expectations are up.

Now the low own activity expectations imply that the September quarter has not got off to a good start in terms of economic growth – this will be an important measure to keep an eye on going forward.

Most interestingly, the fall seems to be primarily the result of a weaker outlook for the construction industry and NOT retail. This is a touch surprising, especially given the 16% increase in retail fuel prices over the three months to 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?

As many retailers many care about the December quarter (I remember working at the Warehouse as a student 🙂 ), and given that retail accounts for a substantial section of the economy, a quick turn around here could really have an impact on the RBNZ’s decision on whether to cut.

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 – as we have seen in September and March (although we saw the reverse in December, this was probably just noise – which implies that the September and March numbers viewed by themselves will exaggerate job losses).

As the employment figure is not disaggregated, I cannot tell if the looseness in the labour market is starting to broaden, so I can’t make any definitive conclusions on what these figures mean.

Finally, 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 3.67% must make the RBNZ feel nervous.

Hopefully, the Bank will indicate that it is paying more attention to inflation expectations in its September monetary policy statement.

I’m still concerned that the economy will start to lift strongly again from September – right in the middle of an easing cycle. As this pick up will not appear in the data until November/December, the Bank will not begin to stabilise/tighten rates until AFTER the election. Cutting before an election and tightening afterwards is not a good look 😛

I realise that the economy is slowing markedly at the moment, but hell guys we have had a ridiculously big terms of trade boost. Dairy prices are elevated, and meat appears to be following – are things really so bad that the economy is going to collapse in the face of the biggest income boost we have experienced in nearly 40 years?

Note: My pick of rising economic growth from September is out of line with what everyone is picking – it is a mix of how I feel, information I’m hearing from others, and a contrarian element in me. It is probably a more extreme view than my post-budget pick that inflation would hit 5% in September – as a result, don’t expect it to happen 😛