Matt Nolan

Brian Fallow article on inflation

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Just had to say that Brian Fallow’s column on inflation in the NZ Herald was really good – I think everyone should read it.

Generally, economists seem to be running with a consensus about what inflation is and why it is bad (outisde of Berl at least – although they have toned down the anti-targeting rhetoric of late, and focused it more to a duel target mandate) – we currently differ insofar as we have different outlooks for NZ economic growth, and therefore different outlooks for where inflation will head in the current monetary policy setting.

There is a lot of economic information out today – however, this means I will be very busy.  As a result, don’t expect to much from me until later this afternoon 🙂

If anyone has any economics topics they would like covered at some point – mention them in the comments and I’ll see what I can do.

Matt Nolan

Real estate data and interpretation

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The July Barfoot and Thompson numbers are out according to Stuff. The Rates Blog discusses the numbers – something I’m not going to do here.

However, I always enjoy reading what real estate owned businesses have to say about the numbers. In the Stuff article we see that house sales increased by 73, and we are told that this

shows that vendors who need to sell are gradually adjusting to the market and lowering their expectations

Very good – so according to this sales are starting to pick up again. However, prices eased pretty sharply. In order to account for this we are told:

Mr Thompson says while prices clearly eased during the month, the average was skewed slightly by a package of 87 apartments going unconditional during that time and reducing the overall average

Just a second. There was a one-off sale of apartments. Often when there is a sudden “one-off” event like this, people will look past it in order to get an idea of underlying activity in the market. As a result, the trend in sales would be 87 lower than the reported number – or below the June result. This does not suggest that house sales are recovering!

If it wasn’t for the fact that Barefoot and Thompson wanted to make the fall in prices not sound too bad we never would have heard of this one off increase in sales – and so we might have also taken the wrong conclusion from the data.

Ultimately they have to make a choice, was there an increase in sales and a sharp fall in prices, or a moderate easing in prices but no improvement in the sales picture – they can’t cut the data both ways 🙂

Update:  The commentator at the real estate blog discusses how the apartment block influenced the median sales price.

Matt Nolan

Australiasian Reserve Banks: Do they know something we don’t?

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Well to be honest, the Reserve Banks know a lot of things I don’t – but it appears that maybe they have some access to information that I am not aware of.

Yesterday, the Reserve Bank of Australia turned even more dovish than it had been earlier – spelling out the fact that it was going to start cutting interest rates soon (here). Similarly, the RBNZ began cutting from July 24th in a statement that seemed to indicate that interest rates were going to be progressively cut over the rest of 2008 (here).

Now both Bank’s admitted that inflationary pressures were rife – however, both banks have also presumed that wage pressures and inflation expectations will moderate. This is the kicker – price and wage claims must moderate, and both Bank’s appear to have a reasonable amount of confidence that they will.
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Matt Nolan

Debt for infrastructure – and the issue is?

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There has been a lot of talk (here, here, here, here, here, and here) about the a potential National government taking on debt for infrastructural investment. Now I’ve got no problem with this, and Roger J Kerr says here we could view it as an intergenerational issue – borrowing allows us the stagger the cost of the capital over time in the same way that the benefits from the capital investment occur over time.

Furthermore, borrowing allows us to fund expenditure that provides economic growth, without having to introduce taxes that limit this growth (although note that future taxes would have to be higher to pay for the borrowing – so we only have a net benefit if growth stemming from the capital investment exceeds the cost of the eventual tax increase!).

However, there are a couple of issue that I hope any government will remember before going into debt to build up infrastructure.

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Matt Nolan

June 08 labour market: The first half

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So the quarterly employment survey and the labour cost index came out yesterday.

Now remember that the pointer for me was hours worked – I wanted to see how far they fell before making any judgments on the state of the labour market. The kicker is that they rose!

According to the tables in the QES total hours worked was up 2.0% on a year ago, and up 0.5% (seasonally adjusted) on March. These figures are still weak were moderate (ht CPW), but they are stronger then I, or many analysts, were expecting – especially given the low level of net migration at the moment. Overall this suggests that unemployment could potentially come in below the 3.8% rate that is predicted by the market .

The LCI was marginally weaker than market expectations, rising 0.75% over the quarter compared to a forecast 0.8%. This took annual growth in the LCI to 3.5%. As the LCI is effectively productivity adjusted this is telling us that underlying inflationary pressures remain elevated.

Anyone else have much to say about the labour market data before the HLFS comes out on Thursday?

Other sites on employment: The Standard, Tumeke, Rates Blog.

Economists: BNZ, ANZ (not currently online), Westpac, ASB, Infometrics (subscription required).

Matt Nolan

June Labour market preview: Employment and hours

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Next week we have the labour market data – an incredibly important data set when trying to figure out what happened over the June quarter.

While most other economists will be talking about their picks for unemployment etc (Note: Unemployment in the 4’s will be a concern), I thought I would discuss some of the things we should keep an eye on whenwe all try to analyse the data next week 🙂

On that note, the Economists View blog discussed some of the issues that have seen employment and unemployment act relatively sluggishly in the face of both economic slowdowns and accelerations over the last decade.

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