Any hopes that we all might be able to ease ourselves slowly into the New Year are likely to be pretty quickly dashed, I feel.
This year already looks like one that's going to get off to a real quick start and then leave us all hanging grimly on trying to keep up with everything.
Therefore, as my first contribution for 2023 I want to do a quick summary of where things finished up before we all disappeared for Christmas, before briefly talking about some of the big stuff that's just around the corner.
This is in fact a cunning strategy on my part with two aims: one to get MYSELF up to speed with what on earth has been going on and secondly, to get you, dear reader, sufficiently girded for the challenges ahead.
Okay, to start with the headline stuff: In keeping with the general trend of economic data again and again blowing all expectations out of the water, the September quarter GDP released in mid-December came in at a much hotter than expected +2% for the quarter. Unemployment's still at a super-tight 3.3%, with hourly wage rises now hitting 8.6%. Annual inflation as of September was at 7.2%, which again was a much stronger figure than expected.
The latter figure appeared to rattle the RBNZ, which had thought it was getting things under control. It reached for the blunderbuss with a 75-basis point blast to the Official Cash Rate in its last rate review of 2022 on November 23. Impressive as this upward shunting of the OCR to 4.25% was, what strangely seemed to get bigger traction with the public was RBNZ Governor Adrian Orr's frank revelation that the central bank's deliberately trying to engineer a recession for us. Well, why not? Christmas was coming, and the spirit of giving and all that.
Well, we might all have been looking forward to the holidays, but apparently we went into them in a pretty dark mood, judging by various confidence surveys (see here and see here) that were released towards the end of the year.
Of course, the housing market hasn't been helping the mood, and the December housing data released to date (see here and see here and see here) is indicating perhaps a slower pace of price falls (these things being relative) but on very low sales volumes. And low sales volumes would tend to indicate continued downward pressure in the short term.
All of this has happened of course as mortgage rates have been rising rapidly. And sure enough, people have not been queuing up to get mortgages in quite the way they were back in the 'good old days' of 2020-21.
The RBNZ released a bunch of crunchy info for November just prior to the holiday break. The sector lending figures showed that the annual rate of growth in the country's stock of mortgages was down to just 4.8% (plummeting from 11% as of November 2021). The 4.8% growth rate was the slowest since February 2015.
The detail on the monthly mortgage lending available through another RBNZ data release emphasises the picture. The $6 billion borrowed in November was less than two-thirds of the bumper $9 billion-plus advanced in November 2021 as the all night house buying bender of the previous 18 months started to come to its crunching end.
Interestingly though, the plucky first home buyers are not being deterred. They are still in there in very sprightly numbers. The $1.357 billion borrowed by this grouping in November was down by less than $400 million compared with the hothouse figures from the same month a year earlier. And the 22.4% share of total mortgage monies advanced that the FHBs took in November was a new record high for this grouping.
It is to be imagined that the perceived job security of a super tight labour market and an unemployment rate of just 3.3% is proving conducive to keeping the FHBs very interested in the housing market.
As I've said a few times, the job market will be key to everything this year.
Last week's BNZ/SEEK Employment Report then was of very much more than passing interest. This graph is exactly what the RBNZ would want to see:
BNZ senior economist Craig Ebert said that "far from being an aberration", the 8.3% drop in November’s job ads proved to be a pretty good pointer to further weakness in December.
"Job ads fell 6.3% in the final month of 2022. This took the cumulative fall over the last four months to around 20%, based on the seasonally adjusted series. It’s been a similar sized drop in trend terms. This measure also marked jobs ads, in December 2022, at about 20% above their 2019 average, whereas in mid-2022 they were running around 40% higher than that pre-Covid point of reference.
"It’s been quite the cooling. Indeed, tracking the trend forward, jobs ads could be back down to pre-Covid levels by the middle of 2023."
As I indicated just above, the RBNZ's looking for the job market to weaken, which will slow spending and take heat out of the economy. The RBNZ was forced to concede towards the end of 2022 that it had seen little impact so far from higher interest rates.
We get further views into the rear vision mirror of the economy during this week with the NZIER releasing its latest Quarterly Survey of Business Opinion. You won't win any prizes for guessing that the results will be similar to the already released gloom and doomfests linked to further up this article. UPDATE: actually it was probably even worse than expected.
Then of course further into the week we'll get the final definitive word on the year in housing with the REINZ December figures and we'll get to see what the decline was in annual terms for the calendar year. As of November REINZ was reporting a 13.7% annual decline in prices nationwide. Gulp. UPDATE, DITTO: This was also everything we expected and more.
Also this week we've got from Stats NZ the December electronic card transactions data, which economists are expecting to be quite weak. Be interesting to see. I have a feeling, a gut feeling, that NZ Inc overspent this Christmas (I know I did) and that could have ramifications down the line. UPDATE: I was completely wrong. The figures give the first real substance to the idea of a slowdown starting.
And then at the back end of this week Stats NZ will help us to work out where all that money was spent with the latest Food Price Index. Remember that food price inflation hit a 14-year high in November. Will we top that again? UPDATE: Oh, we sure did!
All of this stuff is softening us up for the biggies that are just ahead. On January 25 Stats NZ's releasing the December quarter consumers price index inflation figures. I'll have much more to say about these a bit closer to the time, but suffice it to say a lot of people will be hoping the RBNZ's forecast that inflation will actually RISE to 7.5% will be wrong. It's fair to say the 'market' is disinclined to believe that the RBNZ is even close with that pick so will therefore be shaken to its roots if the RBNZ is actually right.
Just a week later, on February 1, we've then got the labour market figures. The key, as I said above, to the whole thing. Expect the figures to be still hot, but also expect any sign of cooling at all to be jumped on by economists as a cue for the RBNZ to ease back on the OCR hike gas. On February 14 the RBNZ releases its much watched (by the RBNZ) Survey of Expectations in which experts give their views on future inflation. Another high set of figures will keep the upward pressure on the RBNZ.
And then on February 22 after digesting all the aforementioned, the RBNZ makes its first OCR call of the year. Another 75 basis point rise was looking like a slam dunk to me as we went into the holiday break, but I see the markets are hedging a bit now, with wholesale interest rates currently pricing a roughly 50-50 chance of either a 50 point rise (to 4.75%) or a 75 point rise (to 5%).
There is much water to go under the bridge before we get to that point.
As I say, it's looking like a fast start to the year. Hold on, and fingers crossed.
60 Comments
Maybe Jacinda ought to have a little talk with Adrian ... because it hardly seems " kind " to want more people to be out of work , and that is Orr's goal , to stomp down on our green shoots ...
... he's safe in his $ 890 000 p.a. 5 years guaranteed job ..." I'm alright , Jack " ... stuff everyone else , huh !
This does seem the safest path.
Still, this is going to be the third year in a row of just treading water, no new capital investment, no new projects or endeavours, no compulsion to expand, take on more people, or look at new opportunities.
If it keeps up, I may just abandon this whole capitalism lark altogether.
As noted I am overweight cash but I expect to reallocate this year.
The biggest risk seems to be consumers running out of puff due to being crushed by inflation. People want to work and spend like I've rarely seen in my lifetime but they are being eaten alive by rising costs.
Agreed, many of my friend group who hold mortgages have to refix this year, one has already confirmed at the current interest rates (not factoring the increase coming in Feb) he will be looking at a 51% increase in mortgage payments in comparison to right now. Another has to refix in December.....I have the tissues ready for them
What would it take for CPI reporting numbers to be delivered at the same speed as other modern economies seem to be able to produce them?
The biggest risk I see in 2023 is our central bank will continue to try and hammer holes in a ship that is already dutifully starting to sink, because, like an navy admiral from 100 years ago, their information shows that it is still sailing due north.
What would it take for CPI reporting numbers to be delivered at the same speed as other modern economies seem to be able to produce them?
The Bureau of Labor Statistics (U.S.) will change the method of calculation of inflation data from January 2023.
https://www.financialexpress.com/investing-abroad/featured-stories/us-c…
Their data collection is still woeful. It has been the blockchain industry that has at least tried to take things into real time.
TA, universally reviled in here, was calling the rate increases to level off at current-or-maybe-one-more-rise levels ages ago. His opinion is not to be trusted because he publishes for a number of organizations in exchange for money, as opposed to living off air, water and exposure like he should.
Media economists are paid for an opinion to be trusted by the masses in order to provide some level of influence in their financial decision making. As opposed to a traditional economist being paid for an opinion to be trusted by the board of a company in order to provide some level of influence in their financial decision making.
If a company was heading down the drain, and a CEO paid their economist to fudge their opinion in order to sustain investment from the board members, both would be fired.
If a company was heading down the drain, and the economist provided wildly inconsistent and incorrect results for over a year in order to sustain investment from the board members, they would be made redundant.
If a company was heading down the drain, and the economist provided wildly inconsistent and incorrect results for over a year, they would likely be made redundant.
It's pretty clear by some of the responses to TAs videos and articles that the masses do not trust his opinion, and his opinion has been wildly inconsistent and incorrect for over a year, so what is he paid for? With this track record, would a bank hire him as an intern?
I totally agree with you malamah. The huge numbers of people who have jumped into the property market taking financial and market advice from a variety of advisors telling them to borrow more and pay more.
1 Agents….. I have heard a number of them giving what clearly sounds like financial and investment advise to very inexperienced buyers. These people work solely for the vendor and should not be allowed to give any financial or price advice to purchasers.
2 Lenders…. A bank lender told me a few weeks ago that they have done very little lending to FHB, it has mostly “gone through brokers”…. In the context of our discussion this felt to me like a denial that they ( the banks) had had any part in this big FHB disaster. My families experience ( younger members) of brokers is that rather than encouraging a tempered and restrained approach to borrowing - I think a reasonable approach while we were operating in an environment of extremely low emergency interest rates - young borrowers were encouraged to borrow more. My experience of borrowing as a young first home buyer was to sit with an experienced bank officer ( manager) who actually gave sound financial advice… often advising not to borrow too much or to purchase a particular property that may financially stress us.
3. And of course a number of economists and other property commentators that have clearly been giving out financial advice, but not from a neutral position - from a particular position to encourage house purchasing even when it was clear that the property market was contracting.
For most people the purchase of a home is the main or only financial investment they will ever make. I doubt that there are many “ordinary” property buyers that have their own independent financial advisors and I suspect that they are taking financial advise solely from the list above. I thought we had clear rules around the giving of financial advice - yet with property we have had a group of people with their own vested interest giving persuasive and at times even coercive advice ( the type that drove Fomo for over a year) to purchasers.
Is there any other market where this is allowed to occur ( genuine question)? What does the FMA think about this sort of “ non independent” advice being given out in the property market or do they consider the property market as something completely separate to other markets - I certainly don’t think it is in New Zealand, property is the investment of choice for most New Zealanders.
You make some good points. Ultimately what it boils down to is when the money is flowing fast and strong, it blinds and corrupts. FOMO from FHB seeig prices rise and only having the hope to purchase a home if they put an offer in the same day as the open home, coupled with, as you mentioned, bank and RE staff pushing their agendas due to vested interests.
Saly we have seen too many people forego their morals for money and not a large proportion will have to suffer the consequences of these actions, apart from the RE agents who have or will soon need to change professions
Yes but who holds them accountable, if they were giving this advice; advice that benefits their own personal position or industry position, in markets such as sharemarkets, bond markets or other financial market, I assume someone like the FMA take action. Why do we consider the property market as different from other markets, yes it is peoples home, but in NZ I think it is the sole financial investment for many people.
Agents who solely represent the vendor, who understandably wants the highest price, are giving price advice to the purchasers. This is of real concern in my area where most sales have been sale by tender with absolutely no transparency. Sales are completed by tender/ multibid process that is completely secret and concealed…. To my knowledge there is no way to discover any of the bids other than the winning bid. Agents give advice on where they think a winning bid might sit.
No chance of a “fair market price” - willing buyer, willing seller both having reasonable knowledge of relevant fact and neither being under any compulsion. And now we will enter a phase of forced sales….. still no chance of willing buyer, willing seller no compulsion.
Anything reliant on manual skill set's will continue to get hammered, medical, construction, agriculture and IT all continue to be heavily effected. This will continue to drive inflation, which the RBNZ will have to continue to raise the OCR, with supporting motivation from the FED.
Burn everyone with inflation, or but the few that are heavily leveraged. Easy choice really.
So in other words, burn everyone not old enough to have minted themselves when prices started spiking out of control while trying to convince them that yet another financial thrashing is for their own good and that they 'should have seen it coming'?
Nah, pass. The playbook we've been using for the last two decades probably won't work from this point on. Let's try something else.
Time and greater potential for wage increases.
Rents in major cities have flatlined, and a lot of townhouses spinning their way onto the rental market in lieu of a buyer. The lifeboat to get out for speculators has gone, banks not looking at <20% I've heard, and testing at 8.5%+. Pick a house on the market, get a rental appraisal, deduct insurance, rates, PM fees, maintenance, then tax, then mortgage and interest. That should land a very low speculator bid down about 50% from where we are now - not saying I predict that's where we'll end up but anything in between is possible.
Has anyone considered the likelihood of different inflationary scenarios playing out in NZ and the US at least in the first half of 2023?
In the US,
While inflation rose 6.5% on a year-over-year basis, consumer prices, over the last six months, are advancing at a less than 2% annualized rate … right at the Fed’s stated target.
The Fed’s preferred measure of inflation the so-called core PCE, (personal consumption expenditures deflator) has also slowed to about a 4% rate.
Meanwhile in NZ, the respite from living cost increases is still a while away. Grocery price inflation still at 10+%, RUC discount is coming off on 31 Jan, half the petrol excise discount will come off in Q1-23 and the remaining half in the next.
Food costs won't be dropping any time soon. Our plum and peach orchard crop totally ruined this year due to rain and humidity an no sun. Planted 200 water melon plants. Lots of growth but not one watermelon. Normally would be big water melon by now close to harvest. Corn all knocked over by cyclone. Tomatoes have black spot. Even the apple orchard has apples splitting from all the rain. Palms are loving it. Pumpkin crop seems to be good so far. Garlic rotted. Disaster year.
Where is nz are you?
I'm in AKL, I think the constant rain since Nov has also affected a lot of my fruit trees and veges.
But I harvested potatoes and garlic in time. My garlic got some rust but the bulbs are ok. NZ grown garlic is crazy expensive and often isn't available in AKL so home grown can make sense.
NZ has higher cost structures than the U.S. for goods and services that make up a representative shopping basket. Think economies of scale.
On that note, online grocery is failing quite badly in Singapore because of economies of scale. Have a good article that I will post later.
Online grocery is failing everywhere, because it's being pushed as a tech business when really grocery deliveries are a business that's well over a century old.
It's failing because the cost to shopper or to the retailer is sub-optimal for a commercially viable proposition. The numbers don't add up.
I think a lot of the issue has been delivery costs have been suppressed by over investment. I've been in some countries where food delivery is less than the cost of the gas to run a scooter.
The numbers stack up if it's a weekly or fortnightly food shop, but it's having to share a market with smaller orders. I'll pay $25 or more to get a weekly grocery shop delivered, but not for a bunch of bananas and loaf of bread.
Unless food and energy costs drop significantly then interest rates and fuel tax increases will likely keep inflation in the 7% area and RBNZ increase OCR to 5%+ making future interest rates on an upward trend and so the dominoes fall, 2023 may be tolerable but 2024 - no I don't want to upset myself with the predictable gloom and doom that not even a Govt change will mitigate much.
They should. Comcom have rooted NZ by allowing monopolies to form.
Eg...
Air NZ allowed to buy Air Nelson and James Cook air, and others in the domestic route market!.. now look at your prices!
ANZ buying National bank etc
Shell buying Caltex, Mobil buying Allied, Gull being brought by whoever, GAS being brought by BP... Competition halved!!!
Many Supermarket chains being monopolised by 2 players. ( Food town, 4 square,... )
Power prices being deregulated at the retail level but controlled by few generators who cannot compete due to govt regulations.
Your phone calls and data being controlled ,( price and data throttling) by a government subsidized ( fibre rollout) private monopoly called Chorus! Thus it's expensive!
You're rates being controlled by local monopolies run by idiots without fiscal responsibility and i vettted/ fetted!.... "Tender the council management out... with strict fiscal KPIs"
Price fixing by competitors in many markets being ignored. House building, electronic prices being controlled by manufacturers and not retailers, ruthless algorithms controllling your life and buying power/ discounts... Or lack of them anymore!!!!!!
Commercial construction dominated by Fletchers and promoted by Government contracts being given to them with no fair tendering process and due diligence!
Roading dominated by Fulton Hogan and the govt ignoring Chinese/ Europe) US options ( better quality cheaper,)
I could go on all day...,
In 2020-2021 combined 14.4 billion was lent to 21,000 Auckland first home buyers. Average of 686k each.
Borrowed at rates 2 - 3.5% depending on timing. Those borrowers will be refixing at 6 - 7.5 depending on circumstances. So at 686k average loan the interest increase is 2.5% at worst 5.5%.
That equates to $330 and $725 per week of after tax weekly income required to service the additional interest.
Price falls are being kept in check because few people have to sell.
With many households being clobbered by Mr Orr's clumsy actions, many people will be now be looking for jobs and they'll find there actually aren't that many jobs available even though employers have been claiming they can't find workers. (Employers have been looking for "perfect matches" that can only be found overseas and by immigrants that'll work for less.)
When Stats NZ come calling to see who is unemployed ... Get ready for a shock.
(Employers have been looking for "perfect matches" that can only be found overseas and by immigrants that'll work for less.)
At the moment employers are having to overlook criminal records and failed drug tests to secure employees. That's generally a sub optimal foundation for a decent employee.
7.5% inflation is going to be on the light side if the price of fuel was taken out( due to Ardern reducing tax on it to buy votes)
COL and Inflation on food alone will be past 10% if the results were not cumulative and base on month by month ( this year v last). That would be a less " fudged" way of calculating it
overall NZs economy has been ruined by Ardern's dumb "idealistic social experiment agenda spending", ignoring the facts by spinning everything to eliminate negative impacts, and huge miss Managment of covid. This and the hugely expensive Greens " we're gunna show the world how to save the planet .02% at a time" dumb initiatives have basically phucked the country. ( But there spin team will of course deflect blame to covid, oil, Russia, and the usual bull shit line of ' climate change ( not dumb farmers poor crop management allowing a bit of rain to decimate thier geographically poorly located crops placed on poorly drained land))
yip Climate change is the go to excuse for every bit of "devestation" these days!... An easy go to to deflect the true blame...
Eg.... Idiots plant forests of pine in the hills of Gizzy. Then said forests are cut down (and the lazy forestry morons leave tonnes of slash lying around) and the dry land beneath is baked in the sun ... Until it pisses down and said slash block up the over sedimented ( due to councils and farmers not clearing their field open drains annually) rivers and FLOODING OCCURS!!!... BUT DO THEY BLAME THEIR OWN MISS MANAGEMENT..noooo! Let's use the Climate change " get out of jail free " card.... Too easy to transfer the blame.. and the dumb press just gobbles it up ...like the Paid government propoganda organization they are!
soooo in summation.. THE. COUNTRY IS RUN BY IDIOTS, MANAGED BY IDIOTS, FARMED BY IDIOTs, PATRONIZED BY GULLIBLE IDIOTS AND REPORTED ON BY IDIOTS. . .EXCEPT ME!!.. who doesn't bUy into the bullshite spin!
The key factor that needs to be factored in is that the Govt in an under-the-radar pre-Christmas decision did not accept the CCC recommendations re ETS pricing. By that decision the Labour Govt pushed climate change policy aside as being less important than inflation management. The political ramifications have yet to resonate but they will do so.
KeithW
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