Matt Nolan

What happened with Boxing day?

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The news stories all seem to indicate that Boxing day was a huge success for retailers (*,*).  If this is the case, then the rapid slowdown in retail spending recorded over November and early December may have been the result of timing issues and price expectations, rather than poor consumer sentiment.

What do I mean?  Well, it is possible to delay transactions – buying the same thing tomorrow is a substitute for buying it today.  As a result, if consumers thought that there would be big sales on boxing day, they may have put off purchases earlier in the month.

Now, if this is the case, retailers appear to have caught the consumers here.  When I went shopping, the sales appeared to be little different to the sales available prior the Christmas.

Even with the lack of cut price deals, people obviously still went out and bought things – I couldn’t even find monopoly at the Warehouse 🙁

What was your impression of the boxing day sales?

Matt Nolan

Are we overplaying the crisis

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I noticed that there were some end of 2008 articles by Michael Laws and Fiona MacDonald.

Both take economists to task, one for doomsaying and one for obsessing about growth. Fundamentally, both articles have one theme in common – economists are exaggerating the impact of the crisis for the man on the street.

Sure, there is always some truth in this. Not everyone will be made worse off – in fact, many people will actually end up better off as a result of the recession (namely those that can keep their jobs and elevated wages). Anyone that reads this blog can tell that the authors here do not feel that the impact on New Zealand will be as severe as it will be for the US or UK. However, New Zealand is not immune to the gyrations of the international economy!

A collapse in the price New Zealand receives for the things it sells overseas is now a distant possibility (infact, in some respect it has already happened). Furthermore, New Zealand has borrowed a lot – with overseas investors now more nervous about lending this is bound to lead to some hardship.

Stating that things will be fine, or that we need further increases in real wages to remove our debt (which have been rising strongly in New Zealand, contrary to the authors statements), illustrates either a misunderstanding of what is going on or a blatant disregard for the risks we face. I would rather listen to the educated panic of the Bernard Hickey’s and Gareth Morgan’s then the arbitrary rambling provided by Michael Laws. Of course, I am an economist 😛

Matt Nolan

GDP continues to drop

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So New Zealand gross domestic product slid 0.4% in the September quarter.  If we stick to thinking about it in “C+I+G+X-M” terms, like we have earlier, it actually fell by 0.7%.

Although everything came to pass as expected, it is still one hell of a downer – given that we are probably heading into a rough time for the global economy.

The key statistic for me is the terms of trade – if the terms of trade collapses, then the next year will be tough, if the terms of trade mystically holds up at current elevated levels I seriously don’t think the recession will get that deep.  Households are responding to the rising cost of debt, falling house prices, and a shock to job security – this is fine in my books as long as the income earned in our country doesn’t start to fall as well (hence the concern about the terms of trade).

Of course – all indications are that our terms of trade is going to be in big trouble, come the start of 2009.

The next three months are going to be incredibly interesting.

Note: In the TOT wikipedia article, why is there a random dig on inflation targeting?  I think the person has got confused by the fact that the lift in the exchange rate redistributes the gains of a rising TOT (from rising world export prices) between importers (like consumers) and exporters – thanks to a rising exchange rate back in 2007 we all nicked a piece of the farmers rising income 😉

Matt Nolan

December NBNZ Business Outlook: Farewell inflation expectations

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The National Bank Business Outlook for December came out the other day, and it was another horrible looking figure for business confidence.

Two key points for me, beyond what we have discussed earlier.:

  1. Own activity expectations are horrible,
  2. The inflation expectations measure collapsed.

The first covers the most important statistic in the series – own activity.  It was terrible, implying that businesses are feeling very negative for their own performance over the coming months.

The second statistic is an important one when thinking about inflation – it was inflation expectations.  This series is relatively stable, but it has now dropped sharply.  In conjunction with “pricing expectations”, and the “RBNZ inflation expectations numbers” this implies that core inflationary pressures are abating quickly.  Also note there was a strong decline in construction – component prices have held up building cost inflation, but this may now be a thing of the past.

Of course the main issue is the “relative price” adjustment between labour and goods – even if inflation goes to zero, if the value of labour has fallen as a result of this crisis we could still be heading towards excess unemployment.

Matt Nolan

A question: Why are low rates having a bigger impact on the housing market here than in the US?

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Today when I was peeking across a number of economics blogs, I noticed a post from the Rates Blog on the NZ housing market, and a post on the Big Picture on the US housing market.

They both had graphs for housing loan approvals:

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Will Taylor

National loves strategic assets too!

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I read with great surprise this morning that the new National government has blocked the sale of the Taharoa iron sands to CKI (who now own the Wellington electricity network too).

Matt was equally surprised, he sent me an email with the subject as “WTF” and the body simply containing the link:)

What the hell is going on? It’s already owned by Australians and pretty much all of the iron ore it produces is exported.  I’m not sure that selling sand falls within the bounds of something that we consider strategic? Maybe that’s just me though

As you probably worked out from my previous rants I disagreed with the decision to block AIAL (here and here) and found it inconsistent with the decision to allow the sale of vector’s electricity network (here). I can’t really work out a consistent pattern for when asset sales will be blocked so I can only imagine what foreign investors are thinking…

If we won’t let people buy our sand from the Aussies what will we let them buy?

Rant over.