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NZ Herald business editor at large

Liam Dann: Economy caught in the cross currents


News on jobs and dairy prices a worry when Govt spending is at low ebb

Mixed data make it hard to gauge whether the economic tide is in or out but  the economy's parts can move in different directions. Photo / Sarah Ivey
Mixed data make it hard to gauge whether the economic tide is in or out but the economy's parts can move in different directions. Photo / Sarah Ivey

sometimes economic news appears conflicting. Often that's to do with the changing tide syndrome.

When the tide is on the turn, currents can run in both directions at the same time. It may not be clear to a casual observer which direction is dominant.

That's especially the case for economics, which lacks the concrete predictability of the moon's gravitational pull.

Take the housing market right now, with pockets of bubble-like activity and other areas still subdued and cautious ... even in Auckland.

There's been a series of stories picking up on record sale prices in suburbs such as Grey Lynn and Parnell.

But real estate firm Barfoot & Thompson released figures this week that added to the confusing picture by showing both sale numbers and prices fell in Auckland last month.

What's going on?

The headlines vary so wildly it seems some must be wrong. But that's not necessarily the case if there are different markets running at different speeds in different parts of the city.

No doubt there is overseas money chasing quality properties in some upmarket suburbs, and given the localised nature of the price spikes it wouldn't take too many investment buyers to drive some record sales.

Auckland also has underlying issues which ensure demand continues to outstrip supply, even if the market should be flat in theory.

But as Westpac chief economist Dominick Stephens pointed out, cheap interest rates and severe under-building are responsible for the big Auckland prices, keeping the supply and demand equation tight in the central suburbs.

It's also important to look carefully at the underlying figures.

The smaller the numbers, the more volatile they are likely to be.

Data from one real estate company - particularly one month viewed in isolation - don't give a true picture of the trend.

But anecdotally, the evidence does suggest that outside the hot central suburbs of Auckland (and quake-affected Christchurch) the market remains subdued.

A glass-half-full approach would suggest conflicting data are clearly better than an alternative in which the figures are unrelentingly bad.

There wasn't too much ambiguity about other economic information last week.

Global prices for the commodities that generate the largest share of New Zealand's export earnings are falling. Dairy is off nearly 20 per cent since last December. And unemployment is rising, according to the figures for the March quarter.

Some, like HSBC's economists, tried to find a silver lining pointing out that there was employment growth.

But, ultimately, the market was picking a fall in the headline number from 6.4 per cent to 6.3 and it ended up being 6.7. It's going in the wrong direction.

Even if you look to the longer trend and notch the March quarter up as a quirk, there's no hiding from the fact that there has been no improvement in the unemployment rate for three years.

Just six months after the Rugby World Cup, and a few months after the peak of a pretty sizeable commodity boom, there has to be real doubt about the view that we're in any kind of recovery at all.

If the Government remains focused on balancing the books by 2014/15 at all costs, then we can't expect state stimulus. In fact, if they are to hit that target, we're going to see more Government policy dampening demand in the economy.

The Student Loan Scheme changes announced this week are effectively an austerity policy. The proposal will see the amount of income those with loans are required to pay back each week increased from 10 per cent to 12 per cent.

There are more lofty arguments to be had about this policy's impact on higher learning but in a purely short-term economic sense, it will remove dollars from the pockets of the nation's 20 and 30-somethings who are big consumer spenders.

It's bad news for retailers trying to stay afloat in an environment where consumers think cautiously about every major purchase.

The argument that austerity is prolonging the downturn has to be balanced against the counter view that New Zealand must get out of debt before something else bad happens to the global economy and overseas investors turn dark on us.

But as we get deeper in to the cold, hard reality of policies that will deal to that debt, we may see the economic tide ebb once again.

- NZ Herald

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NZ Herald business editor at large

Liam Dann is business editor at large at the New Zealand Herald. He has been a journalist for 20 years, covering business for the last 14 of them. He has also worked in the banking sector in London and travelled extensively. His passion is for Markets and Economics, because they are the engine of the New Zealand economy. He hosts The Economy Hub video show every Thursday.

Read more by Liam Dann

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