Green shoots under the microscope: Looking for evidence of recovery – Inside Economics

Green shoots under the microscope. Quite literally. Photo / 123rf

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On green shoots watch

For the next few weeks, I want to look for signs of economic recovery with a forensic obsession.

Despite an uncharacteristically upbeat column on Sunday, I’m wary of letting my hopes for a strong economic recovery cloud my judgment.

“Green shoots” was a big phrase in 2009 as optimists looked for a rebound out of the Global Financial Crisis (GFC).

We didn’t really get a solid recovery for a couple more years.

But let’s face it, if this recovery doesn’t pick up momentum in the next couple of months, something will be very wrong.

We’ve already been waiting two years.

Export prices have been strong for about a year and interest rates are back at stimulatory levels.

Without any fresh external shocks, the local economic recovery should begin to gather momentum from here.

Sentiment does seem to have turned a bit.

ANZ’s Business Outlook Survey showed that confidence improved in October.

But ANZ’s Consumer Confidence was still downbeat.

We’re in a turning-of-tides period, I suspect. There are currents of data pushing and pulling in both directions.

I don’t want to cherry-pick and ignore the more negative data, but it’s a symptom of the media that headlines for bad news will look after themselves.

For example, it’s well-documented that the labour market is one of the last parts of the economy to pick up in a cyclical rebound.

With that in mind, let’s not panic if we see the unemployment rate is still rising.

New labour market data are due from Stats NZ this morning (at 10.45am).

Economists are mostly picking a rise from 5.2% to 5.3%.

As I pointed out a couple of weeks ago, the delay on the big data sets means we’ll still have some big, bad headlines before Christmas.

We don’t see what third third-quarter GDP looked like (and whether we skipped another technical recession) until December 18.

Anyway, there have been some upbeat pieces of monthly data already this week.

Job ads

Before today’s Household Labour Force Survey, we had Ministry of Business, Innovation and Employment data that showed that the number of online job advertisements increased by 3.5% in the year to September.

It was the first annual increase recorded in any quarter since the same time in 2022, RNZ reported.

Growth was led by the IT and construction industries, up 10%.

More borrowing, but fewer behind on payments

The modern economy runs on credit, so data from the credit agency Centrix always provides good early insight into how things are tracking.

The latest release for September was full of green shoots.

Centrix’s latest Credit Indicator report showed new residential mortgage lending was up 21.1% year on year in September.

Overall, new household lending increased by 20.2% year-on-year as borrowers refinance to secure lower rates.

That implies a housing market upturn is a sign of recovery of course, something I’ll get back into later in this column.

Consumer credit demand has also risen 5.4% year-on-year, led by strong growth in personal loans and Buy Now, Pay Later applications.

That’s good if consumers are feeling more confident about spending, although it could just mean people are struggling to pay for essential items like washing machines and cars.

But the report also showed the number of people behind on their payments improved to 465,000 – or 11.99% of the active credit population – in September, down 3000 compared with August.

That’s got to be good news, however you cut it.

Business credit demand was up 3.5% year-on-year, with the hospitality sector leading growth (+31%).

Perhaps that sector is borrowing to survive, but generally, business borrowing is a sign that confidence is returning and firms are starting to reinvest.

Business credit defaults were down 13% compared to last year.

There were also signs of liquidation rates improving across seven of the 19 industry sectors, Centrix said.

Construction remained the leading industry for liquidations.

But based on the next set of data, help may be at hand ...

Building momentum

Building consents rose 7% in September and this was the third monthly increase in a row, according to Stats NZ data out on Monday.

“September recorded the highest number of homes consented in more than two years,” economic indicators spokeswoman Michelle Feyen said.

“Residential construction has declined in recent years, but home consents have been trending up through 2025 and have strengthened in recent months, suggesting a possible lift in future building activity.”

Westpac senior economist Satish Ranchhod noted that “while it’s early days, signs of a recovery in residential building are starting to emerge”.

“Looking through the normal month-to-month swings, the total number of homes consented over the past 12 months has risen to just shy of 34,900,” he said.

“The annual total has been gradually rising for the past four months, with Auckland driving much of that increase. We’ve also seen issuance in Wellington lifting off its lows.”

In her report, Herald property editor Anne Gibson noted that it might be a sign that the Government’s policy to accelerate residential building by opening up more land was gaining traction.

Looking forward, Ranchhod expects consent numbers will continue to trend higher over the year ahead and home-building activity will lift over 2026.

“However, that’s likely to be a gradual rise,” he said.

“While low interest rates are supporting new development, population growth remains low and there have been sizeable increases in the housing stock over the past few years.”

Those factors would still weigh on house price growth and would also be a dampener on the pace of home building, he said.

Wealth effect revisited

Just how much will a housing market rebound lift the economy? The notion that higher house prices create a wealth effect is widely accepted but hotly contested by economists.

In last week’s column, I took a look at research from economic think tank Motu, which raised some serious doubts about the idea that rising prices make homeowners feel wealthier and spend more.

By cross-referencing spending statistics from Stats NZ with housing data, the research paper (Impacts of macroeconomic policies on objective and subjective wellbeing: The role of housing tenure) showed that only home owners with their mortgage paid off spent more money when house prices were rising.

Everyone else spent less.

Does the research mean that the wealth effect, which is widely discussed by economists, politicians and the media, is a mass delusion?

I talked to one of the report authors, economist and Victoria University professor Arthur Grimes.

“On the face of it, it seems there is a bit of a wealth effect for outright owners,” Grimes said.

“But there is no wealth effect either way for people with a mortgage and private renters ... and probably a negative effect for public renters.”

Grimes warns that we have to be careful not to overplay the findings.

“We can’t control for everything else that is going on at the same time,” he said.

“So that’s why in the paper, we’re careful to emphasise the relative effects between the different groups rather than the absolute effects.

“We’re much more confident in saying that, relative to outright owners, the others spend less.”

So, for example, the only way to tell whether there was a wealth effect for higher house prices would depend on what might have happened in the absence of house price increases.

Arthur Grimes. Photo / Stephen A'Court

“We’re reticent to say too much about the wealth effect,” Grimes said.

“But certainly, the raw information would say that to the extent there is a wealth effect, it only affects those who own their home outright. And then the effect isn’t very large.”

When people had an asset such as their house, they also had a liability in their future housing costs, he said.

“So just because it goes up in value doesn’t make you any richer, as you still have to live in another house where the value has gone up as well.”

Grimes suggested that it was possible that outright owners were older, which meant they had less of a future liability in terms of housing costs.

“Standard economic theory would say you’ve got an increase in wealth if you haven’t got a corresponding increase in your future liabilities, so you’re going to spend more,” he said.

“I don’t think it’s non-existent,” Grimes said of the correlation between the housing market and the economy.

He noted previous work he’d done, which showed that house building could boost growth.

“One thing which we didn’t deal with, where there is a positive effect on the economy, is where housing supply increases when house prices increase.”

The economic boost from housing may have more to do with the strength of the construction sector than consumer spending.

For Grimes, the debate about the wealth effect is a bit of a distraction.

“The most important thing in the paper was the effect on renters,” he said.

“Any time we talk about house prices going up and how it’s going to be good for the economy or doing something like that, it’s just shafting renters.”

“I think it should be the headline every time house prices go up: renters worse off again.”

On the flipside, the current downturn in house prices continues to ease rental prices, according to new data from Cotality.

Auckland rents are down 0.5% annually.

Hamilton rents fell 0.6% and Wellington had the sharpest decline, falling 6.1%.

Liam Dann is business editor-at-large for the New Zealand Herald. He is a senior writer and columnist, and also presents and produces videos and podcasts. He joined the Herald in 2003. To sign up to his weekly newsletter, click on your user profile at nzherald.co.nz and select “My newsletters”. For a step-by-step guide, click here. If you have a burning question about the quirks or intricacies of economics send it to liam.dann@nzherald.co.nz or leave a message in the comments section.