A new lease of life

Recent economic data have enjoyed a surprising second wind, arguing in favour of a pause by the Reserve Bank at its October meeting. Whether that will be enough to generate the sustained inflation the Reserve Bank needs to see is another matter.

Activity indicators have been stronger in many areas in the last couple of months, ranging from housing, to retailing, to manufacturing, and tourism.

Last week, dwelling consents fell 4.9% in August – but that followed a 20% jump the previous month. Looking through the volatility (which reflects the increasing shift to multi-unit buildings in Auckland), that suggests a stronger upward trend in the building pipeline than we had allowed for. In Auckland, consents for 8,615 new dwellings have been granted over the past year – still a fair way away from the 11,000 we think will be necessary to meet the demands of a growing population, but clearly moving in the right direction. Canterbury consent numbers continue to show signs of flattening off.

Meanwhile, the housing market continued to power ahead in September. According to CoreLogic’s latest QV price index (which adjusts for changes in the mix of houses sold) Auckland house prices rose another 6.7% over the past three months, but it’s now very clear that investor interest is spreading outside Auckland, with house prices in Hamilton and Tauranga rising at double-digit annual rates. If that trend continues, it will pose some interesting challenges for the bank regulators, given that the lending restrictions to be introduced from 1 November were specifically aimed at investment properties in Auckland.

Activity has stayed resilient despite steep declines in business and consumer confidence. While business confidence ticked up in September – as we would have expected following the recent lift in global dairy prices – the improvement has been exceedingly modest. Businesses’ economic confidence remains near levels seen during the Global Financial Crisis, and their expectations for their own activity are still close to multi-year lows.

•  Download Full Weekly Commentary