Rolling along

After recent weak business confidence headlines, we had several reminders last week of why we're actually looking for the "hard data" to show a tick up in momentum over the next couple of months. Most notably, retail spending growth exceeded expectations for a second month in a row, and the Government's books for the year to June are in even better shape than forecast. Looking ahead to this week, we outline what we expect to see in the September quarter CPI release.

While weak confidence data continues to hog the headlines, other indicators of how the New Zealand economy is tracking still paint a more resilient picture of economic activity. Last week's electronic transactions data showed retail spending beat expectations for a second consecutive month. While part of the lift was down to higher fuel prices, that wasn't the entire story. Core retail spending (which excludes spending on fuel and other auto-related spending) was up a healthy 1.1% in September, and 5.1% higher than a year ago. So while we remain on alert for signs record high fuel prices will eventually put the squeeze on household spending, the data suggests that's not happening yet.

One reason spending seems to be holding up reasonably well in the face of rising petrol prices might be the boost low and middle-income households are receiving from the Government's flagship Families Package. A number of elements of this package came into effect on July 1, and the package will pump $1.2bn dollars into household incomes in the year to June 2019, rising to $1.5bn a year by the time the package is fully implemented in 2020/21.

The release of the final fiscal accounts for the year to June 2018 showed that the package was certainly one the Government can afford. The Government's books were in much better shape than expected, with higher than forecast revenues and less spending than planned leading to a $5.5bn surplus. That's $2.4bn higher than was forecast in the May Budget. This larger than expected surplus meant that net core Crown debt fell by $2bn over the June 2018 year, taking net debt down to 19.9% of GDP. That's already inside the 20% of GDP level the Government set as a self-imposed debt target under its Budget Responsibility Rules. What's more it has met this target 4 years ahead of schedule.

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