Last week was a busy one for secondtier data releases. Most prominent of the bunch was the NZIER’s Quarterly Survey of Business Opinion, which gave us the first reliable guide to the state of economic activity and the labour market over the fourth quarter of 2009.
The survey was further confirmation that New Zealand is in a recovery phase following recession. Expectations of general business conditions over the next six months rose slightly from 22% to 23% (seasonally adjusted), the most optimistic businesses have been since September 1999. Firms’ expectations of their own trading activity over the next three months were unchanged at 13%, which is roughly average and was consistent with our Q4 2009 GDP forecast of 1.1%.
The surprising element in the survey was the 2.5 percentage point jump in capacity utilisation – something that will worry the Reserve Bank. Historically, capacity utilisation has been one of the best guides to future non-tradables inflation, which lies at the heart of the Reserve Bank’s inflation targeting schema. The data suggested that all of the spare capacity that built up during the recession has already been used up, which in turn suggests that general inflation could soon start to rise again.
However, the size of the jump in capacity utilisation was completely out of kilter with the more modest improvements in other indicators, so it cannot be taken entirely at face value.
According to the QSBO the labour market has well-and-truly turned, although it is still weak. Responses on employment intentions suggested that employment growth has resumed, and firms reported a marked fall in the ease of finding labour. The Westpac-McDermott Miller December quarter employment confidence survey, released the day after the QSBO, confirmed the picture of stabilisation in the labour market with its increase in current employment conditions. Unemployment appears to be close to its peak and will soon claw its way lower. We expect that the unemployment rate will peak at 6.7% in early 2010 before inching lower over the remainder of this year.
