Matt Nolan

September quarter QES and LCI – what happened?

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I do not know what happened, as I am writing this post several days before the results came out.

So what did happen?

Key statistics for me are:

  • Hours worked:  How much did they decline?  This is the “labour input” in its entirety – if domestic activity is declining this will tell us.
  • Retail/construction/wholesale/business and property services employment:  These sections of the labour market should be getting hammered – are they?
  • Hours x average hourly pay:  How is nominal household income growing?  If this slows sharply then we should start to be concerned
  • Adjusted labour cost index:  This is an indication of true, fundamental, inflationary pressure – I suspect that quarterly growth will be over 1% (given that September is typically strong for wage claims), however market expectations are lower.  A result under 0.5% for the quarter is weak – and suggests that slowing economic activity is taking down inflationary pressures.

Give me a run down so I can read it in a couple of weeks 😉

Matt Nolan

National’s redundancy package

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So National’s redundancy package is out. It is different to my initial impression and slightly different to the Labour package.

As well as randomly asking banks to be generous National said it was increasing the accommodation allowance for people who are made unemployed and also increase working for families for people who are made unemployed – both temporarily.

Again, I don’t agree with temporary stimulus measures, as our high household borrowing levels suggest that we aren’t really suffering from “demand deficiency” IMO.

But how to the scheme compare? Well they cost (about) the same, but the Labour package is less targeted on those who will be struggling. The Labour scheme makes more sense as a long-run adjustment (which it is not) the National scheme makes more sense as a temporary stimulus methinks. However, the Labour scheme seems simpler – which means that it will probably distribute the funds more efficiently. I guess it ultimately depends on where you think any stimulus should go in the face of a recesssion – what you believe is equitable.

These are my first impressions, what do you guys think?

Update:  Kiwiblog gives an excellent breakdown (here).

Matt Nolan

Redundancy package

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So Labour is making it that people who lose their jobs during the economic downturn can get the benefit straight away – and over the first 13 weeks no-one will take account of their spouses income (ht the Standard).

Tell you the truth, this sounds a lot better than the scheme National are indicating they will put in place I suspect National is going to put in place – it is less distortionary and actually targets those who are in trouble. Of course, the reason it sounds better is because they are doing less – I still don’t think it is particularly constructive policy.

My only question is, why have no stand-down period during a recession and a stand-down period outside of a recession? Personally I think the two should be consistent. I buy CPW’s argument that a greater proportion of the unemployed are “unfortunate” during a recession and so we want to be lighter on them at such a time – however, again I am torn by the fact that I’m not sure whether society wants the UB as a security net, or as a guaranteed minimum income for people. The way we treat it will differ in each case – and until we are CLEAR about what we have it for, we will continue with inconsistent policy.

Personally, I would make all benefits means tested (taking into account the liquidity of a persons assets) but have them turn up as soon as you are fired (I’m not sure about when you leave a job – I’ll have to think about that one).  Update:  Why has no-one tried to argue this – it is supposed to be contensious.  I blame Friday 😛

Lets see what Nationals actual plan today is – then we can “compare”.

Matt Nolan

Why are we still spending so much overseas?

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According to figures out yesterday, New Zealand corp has greatly increased its spending overseas over the past year.  In part this seems crazy since we have been in a recession over the past nine months – however, there are reasons:

  1. Our exchange rate fell (assuming demand is inelastic – or is not passed on through intermediaries),
  2. The price of imports (specifically food, petrol, and intermediate goods like fertilizer) has risen,
  3. Businesses wanted to invest before our dollar fell below “fair-value”,
  4. Higher prices for our exports have made imports more affordable.

Note that the first two reasons solely drive the increase in prices – while the later two work through greater volumes of imports.  When the terms of trade numbers are out we will be able to see which bit dominates 😉

Furthermore, our recession over the first half of the year was the result of a “temporary” shock – through petrol prices and drought.  As a result of this, people in New Zealand will increase borrowing in order to “smooth” consumption over time – as the goods aren’t here, this involves borrowing to buy goods from overseas.

With the price and availability of credit now rising, and the exchange rate below fair value, I would expect import values to start declining – what do you guys think?

Matt Nolan

Fed cuts rates to 1%

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The Fed lopped 50 basis points off its cash rate, taking it to 1%.  With real interest rates already well in negative territory I’m not sure this sort of action is really necessary – maybe they want to stabilise consumer confidence or something of the like.

Anyway, our concern here is New Zealand – so what did it do?  The TWI went up to 59 from a low of 56 – the $US/$NZ got to $0.59 from a low around $0.54, so it helped to stabilise the FREE-FALL in our currency lately (just before I’ve gone on holiday).  Oil prices also bounced back – but still lie at the “relatively” low level of $67US a barrel.  For New Zealand this might imply some stability in our commodity prices – this is an essential issue so we can only hope!

All this is a sign that the market has initially taken the rate cut well, with the DOW now up 1200 points from its low about 36 hours ago (*).  If this lasts, then we could finally be in for a time of stabilisation – if it doesn’t, who knows 😛

All I know is that the Fed will print as much money as it can to prevent a “Great Depression”, ignoring the future consequences.  I will aim to discuss this more next week.

Will Taylor

Matt Nolan on Breakfast: Relive the magic, the hair and the hairy prediction about the property market!

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For those of you who missed the magic, before the credit crisis we were worried about a property crisis.  In the midsts of this madness Matt Nolan was itnerveiwed by Paul Henry on breakfast.  I was bored so I thought I would track down this video and relive the magic.  At Matt’s gesturing I’m posting the link on the blog so that we can “make fun of how wrong I was (as house prices are already down 5.8% on a year ago) :P”

So here it is

http://tvnz.co.nz/view/video_popup_windows_skin/1638250

I don’t claim to know much about the proprty market,so instead I’ll make fun of his hair, watch the video to see Matt’s long (OK it’s not THAT long…) flowing mane of hair, then click below the flap to see Matt’s photo from the Infometrics website to see what he looks like these days

Agnitio

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