Mark Lister says there's been a string of positive economic indicators in the past few weeks. Photo / Getty Images
Mark Lister says there's been a string of positive economic indicators in the past few weeks. Photo / Getty Images
COMMENT:
We've seen a string of positive economic indicators during the past couple of weeks, all of which suggest the country has started 2021 in much better shape than many might have expected.
This doesn't surprise me at all. We've been upbeat on the prospects for New Zealand for sometime now and have felt that conditions on the ground were much stronger than the prevailing market views have suggested.
We have hundreds of staff and thousands of clients across every corner of the country, which gives us the privilege of spending time with a wide range of businesspeople, exporters, farmers and everyone in between.
This real-time feedback is much more telling than any statistical release or economist report.
The first piece of good news was another positive development for the agricultural sector. The latest global dairy trade auction saw prices continue to rise, the sixth consecutive gain which puts the headline index up 19.3 per cent since the beginning of November, and at the highest levels since May 2014.
On the back of this strength, Fonterra increased its milk price forecast range for the third time in recent months. The co-operative now sees the 2020/21 payout at between $6.90 and $7.50. At the midpoint of $7.20 this would be the fourth highest of the past 20 years, and it comes in the face of a strong currency.
The December quarter labour force report was also much better than expected. Employment growth was much better than expected, and this saw the unemployment rate fall to 4.9 per cent, in stark contrast to expectations for an increase.
Mark Lister is head of Private Wealth Research at Craigs Investment Partners. Photo / File
The participation rate increased, while hours worked also saw a solid increase, suggesting a bigger proportion of employees are back to working their usual number of hours.
Having said that, the strength isn't being felt across the board. Jobs are plentiful in the construction industry, while healthcare, education and the public sector are also strong. In contrast, employment numbers remain well down on a year ago in retail, accommodation, and travel.
The first ANZ Business Outlook report of the year also pointed to a strengthening economy. The preliminary survey for February saw headline business confidence improve to 11.8, the highest since August 2017 and the fifth consecutive month of improvement.
However, confidence isn't the only thing that's going up. Costs are also rising as inflationary pressures bite. ANZ's survey suggested that 71 per cent of firms are expecting higher costs ahead, and 49 per cent were intending to raise prices accordingly.
Both of those are up sharply from December, although the difference between those two figures suggests that many firms intend to absorb the increasing costs. That means some will face margin pressure and are likely to see profits impacted.
While much of this is great news that will be welcomed, many people will now be questioning whether we need as much monetary stimulus from the Reserve Bank of New Zealand (RBNZ).
If the economy is in pretty good shape, should interest rates be at life support levels? Similarly, if inflation is rearing its head again, should policymakers start thinking about reining it in?
The next RBNZ release is in about 10 days' time, and it will include a fresh set of economic forecasts. The string of better economic indicators we've seen lately ensures these will look a lot more upbeat, and it also removes any risk whatsoever of a lower Official Cash Rate.
Having said that, I suspect the RBNZ will be reluctant to adjust policy settings too soon. Numerous uncertainties remain, there is a chance our momentum stumbles over the next six months, and some of the inflationary pressures we're currently witnessing will likely prove transitory.
Like its Australian counterpart noted earlier this month, the RBNZ also won't want to fuel any further NZ dollar strength by moving too soon and finding itself out of step with global peers.
Watch this space.
Mark Lister is head of Private Wealth Research at Craigs Investment Partners. This column is general in nature and should not be regarded as specific investment advice.
