Damp Squib From The Election
One of the things we wondered about the recent decrease in job ads, was how much of it reflected uncertainty surrounding the 14 October election. The corollary being that advertising might rebound, once the result was known. Well, the broad outcome of the election was clear by November, yet job ads continued to abate in the month. Their seasonally adjusted fall, of 4.8%, was the seventh in eight months. This affirmed a decidedly negative trend.
More migration, higher rates!
The RBNZ appears to have been spooked by soaring net immigration. It seems the expectation of rising demand and house prices on CPI inflation has dominated the Monetary Policy Committee’s thinking, as opposed to focussing on the disinflation being created by a rapidly easing labour market.
Downside Risk To Q4 CPI Forecast
Today’s selected price indexes from Stats NZ – including some new indicators – point to downside risk to our Q4 CPI forecast which sits at 0.7% q/q and 4.9% y/y.
To start with, food prices fell 0.9% in October, which was a bit more than the small drop we had pencilled in for the month. Importantly, the undershoot to our priors was not in volatile fruit and vegetable prices (that didn’t fall as much as we thought they might), but rather spread across the other categories. This suggests October’s downside surprise might not unwind over coming months (relative to our forecasts for November and December). If so, this, alone, would lower Q4 CPI by 0.1ppt relative to our current view.
New Zealand’s services sector went back into contraction in October, according to the BNZ – BusinessNZ Performance of Services Index (PSI).
The PSI for October was 48.9 (A PSI reading above 50.0 indicates that the service sector is generally expanding; below 50.0 that it is declining). This was down 1.7 points from September, and well below the long-term average of 53.5 for the survey.
BusinessNZ chief executive Kirk Hope said that the return to expansion in September was short lived, with the key sub-index results for Activity/Sales (47.4) and New Orders/Business (51.9) showing a lower level of activity in October. Employment (49.3) returned to slight contraction, while Supplier Deliveries (49.8) remained in a tight band of activity that has been evident over the last three months.
“Despite the October result falling back into contraction, the proportion of negative comments stood at 58.2% for October, which was down from 61.8% in September and 63.9% in August. Overall, negative comments continued to be strongly dominated by the recent General Election, as well as a general slowdown in the economy”.
Looking at the broader perspective, BNZ Senior Economist Craig Ebert said that "combined, the PSI (48.9) and PMI (42.5) paint a picture of economic angst. This counsels caution around GDP for Q3, after it posted a surprising gain of 0.9% in Q2”.
Activity in New Zealand’s manufacturing sector dropped further during October, according to the latest BNZ – BusinessNZ Performance of Manufacturing Index (PMI).
The seasonally adjusted PMI for October was 42.5 (a PMI reading above 50.0 indicates that manufacturing is generally expanding; below 50.0 that it is declining). This was down from 45.1 in September, and the lowest level of activity for a non-COVID aﬀected month since May 2009. The October result represented the ﬁfth consecutive drop in activity levels, and signiﬁcantly below the long-term average activity rate of 52.8.
BusinessNZ’s Director, Advocacy Catherine Beard said that the October result represented a further downward spiral of activity for the sector, which was seen across all the sub index measures.
“The key sub index measures of Production (41.5) and New Orders (44.1) fell back from September, with the former at its lowest level for a non-COVID month since May 2009. Employment (43.3) decreased a further 1.8 points from September, while Deliveries (42.9) dropped 1.4 points".
The proportion of negative comments stood at 65.1%, which was down from 68.8% in September and 66.7% in August. Numerous manufacturers noted both softening orders, as well as patchy/slowing sales for October.
BNZ Senior Economist, Doug Steel stated that "today’s PMI is not a good look for GDP and employment growth. Our GDP forecasts already include a decline in the manufacturing sector in the second half of 2023. There’s a chance that decline is bigger than we think, if the PMI does not bounce in the ﬁnal months of the year".
October’s job advertising fell a more definitive 5.6% in October, fortifying the downward trajectory in the trend. Negativity also remained a feature of the annual comparisons, with October’s job ads down 29.4% on this basis. They were also starting to slip beneath pre-COVID yardsticks – and clearly so in per capita terms, considering the population has grown 4.1% since 2019.
Labour Market Tightness Abating
It felt like today’s labour market data were always going to struggle to deny the clear messages, from a host of other indicators, suggesting that prior tightness in the market is abating, and rather rapidly.
In the event, the plethora of today’s data simply confirmed and reinforced that message. It was writ large across the headline indicators from higher unemployment, slowing wage inflation, and falling employment.
Businesses Reflect Positively on Election
This afternoon’s ANZ business outlook survey showed a big jump in net confidence to +23.4% in October, from +1.5% in September. Own-activity expectations strengthened to +23.1%, from +10.9%. These are now back up to about average, having struggled in negative territory over the first half of the year.
CPI confirms RBNZ on hold
Today’s CPI outturn should extinguish any talk the RBNZ might contemplate raising its cash rate when it delivers its November 29 Monetary Policy Statement. The third quarter headline inflation reading of 1.8% was well below the RBNZ’s pick of 2.1%. This at a time when the labour market is easing aggressively, and economic activity is under extreme pressure.
Some spring in step
New Zealand’s services sector experienced a return to expansion in September, according to the BNZ – BusinessNZ Performance of Services Index (PSI).
The PSI for September was 50.7 (A PSI reading above 50.0 indicates that the service sector is generally expanding; below 50.0 that it is declining). This was up 3.0 points from August, although still below the long-term average of 53.5 for the survey.
BusinessNZ chief executive Kirk Hope said that the September result broke the trend of three consecutive months in contraction for the sector. New Orders/Business (53.9) led the charge, while Activity/Sales (50.9) picked up 6 points. In contrast, Employment (50.6) showed weaker expansion for the month, while Stocks/Inventories (47.9) fell back into contraction after two months in expansion.
“The proportion of negative comments stood at 61.8% for September, down slightly from 63.9% in August. Overall, negative comments continued to be strongly dominated by uncertainty regarding the upcoming General Election, as well as the cost of living”.
BNZ Senior Economist Craig Ebert said that "the seasonally adjusted reading of 50.7 was clearly better than August’s 19-month low of 47.7. However, it was also clearly south of its long-term average of 53.5. Stabilised but hardly buoyant”.
New Zealand’s manufacturing sector slipped further into contraction during September, according to the latest BNZ – BusinessNZ Performance of Manufacturing Index (PMI).
The seasonally adjusted PMI for September was 45.3 (a PMI reading above 50.0 indicates that manufacturing is generally expanding; below 50.0 that it is declining). This was down from 46.1 in August, and the lowest level of activity for a non-COVID aﬀected month since May 2009. The September result is also signiﬁcantly below the long-term average activity rate of 52.9.
BusinessNZ’s Director, Advocacy Catherine Beard said that the September result continued an entrenched downward trend in activity over the last four months.
“The manufacturing sector has now been in contraction for seven consecutive months, with little sign it is showing any improvement. The key sub index measures of Production (44.6) and New Orders (44.9) show weak activity, while Employment (45.2) and Deliveries (44.3) both fell from August."
The proportion of negative comments stood at 68.8%, which was up slightly from 66.7% in August, but down from 72% in July. Manufacturers continued to note declining sales, General Election uncertainty and ongoing rising costs as the key negative inﬂuences on activity for September.
BNZ Senior Economist, Doug Steel stated that "the trend remains ﬁrmly downward. It is a poor signal for the likes of manufacturing GDP growth. It is always diﬃcult to know the precise drivers of any particular PMI result but judging by respondent comments falling sales, rising costs, and election uncertainty are currently all part of the mix".
Recovery Inkling Takes A Knock
September’s 2.3% decline in job advertising validated the caution we expressed about the bounce that occurred for August. September’s result knocked the idea that some sort of rebound was underway. That said, the small degree of its fall also suggests the downtrend, which has been aggressive since the extreme highs of 2022, might have largely played itself out. For now, at least, a holding pattern seems more the impression from job ads. And at levels, overall, that are roughly equivalent with what transpired in 2019 (pre-COVID).
No rate hike this year
here was nothing in today’s Monetary Policy Review to suggest the Reserve Bank has meaningfully changed its view since the August Monetary Policy Statement. At the margin there is some suggestion the cash rate may need to stay elevated at 5.5% for longer than previously thought but there is no suggestion that the Bank is contemplating any move in the cash rate this side of Christmas.
Unemployment surge cemented in
The clear message in today’s NZIER Quarterly Survey of Business Opinion (QSBO) is that the labour market continues to soften and aggressively so. We have long said the secret to stabilising prices in the medium term is to alleviate the excess demand that had developed in the labour market during the COVID era. We maintain that view.
All under control? Maybe.
There were disconcerting signs in today’s ANZ Business Survey that inflation is not falling as fast as the RBNZ might like. Disconcerting this may be but not altogether surprising given the ongoing increases in input costs that the business sector is facing. Top of the list, in this regard, are surging oil prices.
Recession rounded away
It was all so predictable. Q2 GDP printed very solid. Indeed, more solid than expected resulting in plenty of back patting that the recession is now over. To cap things off, enthusiasm for New Zealand’s achievements grew with the news that, apparently, there was no contraction in Q1 anyway so there was no recession in the first place.
All this goes to show how fickle we can be. The only reason there wasn’t a recession was that Statistics New Zealand rounds its numbers to one decimal point. Had it published to two decimal places -0.01% then all those headlines would have to be rewritten. And, by the way, the expenditure measure of GDP still reported a clear cut second quarter of decline in Q1.
External Deficit Coming Back from The Brink
New Zealand’s current account deficit has more clearly come down from its record heights of calendar 2022. But then it needed to, and needs to slim by a lot more yet, before it’s perceived as being out of the danger zone.
From the figures released by Stats NZ this morning, the external deficit trimmed to 7.5% of GDP in the year to June 2023. This was a decent amount under market (and RBNZ) expectations of an 8.0% result. We anticipated 7.9%.
New Zealand’s services sector experienced its third consecutive drop in activity levels, according to the BNZ – BusinessNZ Performance of Services Index (PSI).
The PSI for August was 47.1 (A PSI reading above 50.0 indicates that the service sector is generally expanding; below 50.0 that it is declining). This was down 0.9 points from July, and almost at the level seen back in January 2022. It was also well below the long-term average of 53.5 for the survey. BusinessNZ chief executive Kirk Hope said that the August result showed little in the way of a road to recovery. While Employment (50.9) went back into slight expansion, Activity/Sales (43.4) remained in strong contraction and New Orders/Business (47.3) was in contraction for a second consecutive month. In addition, Supplier Deliveries
New Zealand’s manufacturing sector continued to lose momentum in August, according to the latest BNZ – BusinessNZ Performance of Manufacturing Index (PMI).
The seasonally adjusted PMI for August was 46.1 (a PMI reading above 50.0 indicates that manufacturing is generally expanding; below 50.0 that it is declining). This was down from 46.6 in July, and the lowest level of activity for a non-COVID affected month since June 2009. The August result is also well below the long-term average activity rate of 52.9.