Matt Nolan

July NBNZ business outlook

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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.

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Matt Nolan

Institutional Economics column 26/07/2008

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An excellent current affairs column by Dr Stephen Kirchner of Institutional Economics (*).

For all my bleating, the inflation problem in Australia is considerably worse than it is here, just look at this:

Excluding the transport group from the CPI, the component most directly affected by higher oil prices, still yields an inflation rate of 1.2 per cent over the quarter and 4.1 per cent over the year

Damn. For people interested in the data the CPI stuff is here, and the all important labour market stuff is here (note that unemployment fell in Aussie!).

Next weeks labour market data will be all important for us here in New Zealand – I’m still picking that the economy will pick up from about September, just soon enough to prevent non-tradable inflation from easing sufficiently. If September quarter GDP rises by less than 0.5% (with an equivalent fall in June), I might have to take that back – but we won’t get those numbers till December 🙂

Matt Nolan

RBNZ speech: Inflation targeting serves NZ well

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As I said, I will discuss the RBNZ speech from yesterday.

Personally, I thought the speech was spot on – Dr Bollard understands the issues associated with inflation targeting, but he also more than understands the benefits.

Look at this statement surrounding oil prices shocks:

Instead, the key policy requirement in this situation is to allow the initial externally driven relative price changes to occur, but keep monetary policy sufficiently firm to ensure that generalised second-round inflation effects do not take hold – in other words, to keep inflation expectations anchored.

This is all I wanted the Bank to say in their latest statement – that they would react to the second round of price increases stemming from an increase in oil prices if it occurs. Tell the market that, although the CPI figure looks bad, once we’ve cleared the recent shocks inflation will again be the primary concern.

Furthermore, the Bank damned alternatives to inflation targeting – specifically:

Another alternative that could appear superficially attractive is to require monetary policy to target multiple objectives such as growth, employment, export and the balance of payments. This was the approach taken in New Zealand and many other countries in the post-war period up to the early 1980s. It inevitably had a short-term focus, and resulted in stop-go policies and high inflation. We now know that one instrument cannot succeed in achieving multiple objectives over the cycle. The move to inflation targeting, with its single, clear objective, resulted from the lessons learned in that period. We do not want to re-learn those lessons.

Very good 🙂
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cpworthington

Sorry, no conspiracy here

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The Standard(*), No Right Turn(*), and Hard News(*) have all commented on a graph showing the declining share of labour compensation in national output over the period 1981-2002. The claim/implication is that right-wing policies have contributed to the drop in labour’s share, and that the Labour government’s policies have reversed that trend somewhat in recent years. Does this explanation make sense?

Source: Stats NZ (national accounts)

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Matt Nolan

Flexibility and inflation targeting – the RBNZ discussion

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According to the Rates Blog, Dr Bollard will be doing a speech on “Flexibility and the Limits to Inflation Targeting”.

I am looking forward to the speech – it is an important issue, and Dr Bollard and the staff at the RBNZ definitely know what they are talking about.

Generally I have shown myself to be an inflation hawk and passionate lover of inflation targeting (*) (*) – but I am looking forward to hearing the arguments provided in this speech, and will be more than happy to be proven wrong if that is the case 😉

I may write about the speech at some point – if there turns out to be anything of great interest in it.

Update: The speech was very good – I will comment tomorrow, another commentator is writing something tonight and I’m not a fan of having more than three posts a day on the blog 😉

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Matt Nolan

The frogs challenge: Discuss imports

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In a discussion on our trade balance frog blog states that mainstream economists won’t talk about the import side of the ledger. Now I’m a mainstream economist (I think I should put that on my business card 🙂 ) so I decided that I should take up the challenge.

So lets have a look at the tables. First I will discuss Frog Blog’s claims about the import series, and then I will discuss the way I see it:

Update:  Anti-Dismal captures the essence of confusion surround the issue of exports and imports here, fundamentally reminding us all that it is consumption that is good – not employment per see (the end is the target, not the assumed means!).  Very good 🙂

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