I usually only write material in the Weekly Overview these days if I feel I can offer a different perspective on something going on or some new food for thought regarding developments in the economic sphere. This week no inspirational juices were flowing at all I’m sorry to say so let’s just do a quick summary of some of the interesting stuff learnt recently.
The trend in net migration inflows remains down but the pullback from a peak of 72,000 net gain a year ago to 64,000 now is very slow and not troubling from an economic stimulus point of view, or beneficial from a house price point of view for those people still hoping – ten years down the track – for a decent fall in NZ house prices.
We learnt that contrary to what you might think by reading confidence numbers coming out of the business sector, retail spending actually grew at an underlying pace of about 5.5% per annum in the June quarter.
Real seasonally adjusted spending excluding volatile automotive things jumped by 1.4% to be 4.4% up from a year ago. Per capita real retail sales have risen by 2% over the past year and 15% in the past five years – 18% from the pre-GFC peak. This highlights how strong conditions have been for retailers these past five years.
This strong result yet the presence of high pessimism amongst retailers and closures of shops around the country highlights that it is not the macro scene which is the big determinant of retailing success or failure these days. It is other things we have written about for some time now including new forms of competition (used to be big box store formats now it is online), and reduced ability to manage margins now that consumers can easily find alternatives to goods they feel are over-priced.
On the interest rates front, in spite of the strong retailing result, inflationary pressures in NZ remain weak and we are starting to see some cuts in bank fixed lending rates. This reflects capitulation at last on the part of many regarding the true strength of inflationary forces – they are weak and dynamics have changed over the past decade. Model-based forecasts have been wrong for a decade. Chances are borrowers will continue to enjoy low interest rates for a number of years yet. Investors will also continue to be hit with low deposit rates and will continue to face an incentive to invest in alternative assets – like property.
On the world growth scene, worries have deepened about Turkey and emerging economies generally now that chickens are coming home to roost following a period of irresponsible borrowing in foreign currencies. Chances are things will get worse for those economies.
Regarding the trade war between the United States and China. Some new hope has arrived in the form of a delegation travelling from China to the US. But there remains a lot of water to go under the bridge and we can expect to see more market volatility before things probably settle down once President Trump has extracted enough concessions from the Chinese. If the trade war develops into a currency war then anything is possible.
For your guide, over the years I have written now and then about Kiwi business culture including things such as the tall poppy syndrome, Kiwicentric nature, avoidance of feedback etc. A group called AmbitionNZ are writing a book on Kiwi ambition due out early next year and have asked me to include a link to an 11 minute survey which people are eligible to complete if they are over 16, born in NZ or here for longer than three months. I have completed it and it was no hassle and gave me personal food for thought.
If you are interested here is the survey link. https://ambition.nz/#survey
Source; Tony Alexander www.tonyalexander.co.nz