Here’s What Five Indicators Tell About New Zealand Today

What does the government do when its agencies are overly bureaucratic and inefficient?

Create more agencies of course…

Over the weekend, Housing Minister Shane Jones announced that he’s launching a new state ‘unit’ that will magically fix all of the project issues for other ministries.

The goal is ‘to establish a long-term pipeline of projects, then work with local and central Government, as well as investors, to address some of the issues.

Basically, Jones wants to expand New Zealand infrastructure…and his current battalion of supporting ministries can’t figure it out…so he’s adding another one.

Part of the new unit’s mission is to get creative with finding funding. That could mean rerouting other local or national government budgets…or even raising capital through overseas investors.

More agencies and more money — that’ll get everything running smooth as.

 

Augurs, entrails and the world of economics

The economy is a tricky thing to grasp.

That’s why we have economists, right? To look into the magic eight ball and see where the market’s going. And give us hoi polloi a direction for the future.

Well, as a classically-trained economist, I’ve got a little secret to tell you…

It’s all a bunch of flimflam.

Economists — and our cousins, the psychics — profess to poke at the entrails and understand the future.

And for a small fee, we’ll tell you what we see.

Somehow, economists have infiltrated government and the finance world to slip into prestigious positions…while psychics work in musty basements with neon signs in the window.

Personally, I think economists ought to be working out of basements as well.

In fact, maybe they could team up with the psychics. On one side of the room, discover your romantic future. On the other, your financial future.

A one-stop shop for all your divination needs.

In all seriousness, economists don’t know the future.

The best they can do is make educated guesses…and the more self-aware ones will admit their humanity while others (Looking at you, Alan Greenspan) prefer to wear their predictions as badges of honour.

How do they make these educated guesses? Through the use of ‘economic indicators’.

Economic indicators are nothing more than gauges of how the market is performing. It’s like looking at the RPM gauge on your dashboard. Or your thermometer out on your deck. It tells you how things are running.

And economists then do their best to take those readings and project them into the future.

But as any investor will tell you, ‘past performance is no guarantee of future results.’

So take it with a grain of salt. [openx slug=inpost]

 

Five indicators to understand today’s market

Today, I want to take a look at a thought-provoking article on Interest.co.nz by Matt Nolan. He’s an economist at Infometrics and knows his way around an economic indicator.

As he admits in the article, ‘This is not an analysis of what is happening – this is just an outline of the data…

Nolan looks at ten indicators and tries to paint a comprehensive picture of the NZ economy. Today, we’ll investigate the first five.

His first indicator is the Consumer Price Index (CPI). The CPI looks at a basket of stuff to see if prices are going up or down…and that measures inflation.

What Nolan found was that CPI results point to a very low inflation rate, consistently under the RBNZ’s goal of 2%.

Historically, when markets enter what’s called the ‘late cycle’ or when bull turns to bear, you see inflation growing. At the moment, that doesn’t seem to be the case in New Zealand. Puzzling…

The second indicator is the official cash rate (OCR). This is the rate of interest that the RBNZ charges to loan money to banks. And that typically trickles down into the mortgage rates charged to individual borrowers.

So far, both the OCR and average mortgage rates have been exceptionally low. That’s what some economists call ‘easy money’…and it normally happens during periods of low growth. But the thing is, New Zealand’s economy has been in full swing for almost a decade.

The fact that we’re still experiencing easy money could be problematic if the market dips. The powers that be won’t have much room to budge if they want to help out the market.

Nolan’s third indicator is consumer and business confidence. This attempts to measure the emotional sentiment for the future of the market. There’s not much science behind it — just polls done by various banks like ANZ or Westpac.

Right now, business confidence is low over fears of regulatory uncertainty. Consumer confidence is about average. Nothing to write home about.

Next, Nolan looks at unemployment. Right now, New Zealand has very low unemployment — around 4.5%. Again, this normally happens when the market is healthy… and often leads to higher labour costs.

Less people looking for work means employers have to offer higher incentives to recruit new hires.

But that’s not happening for some reason.

Instead, Nolan found that labour costs have plateaued over the past decade. Labour costs are wages in terms of output. In other words, how much employers need to pay their people to get work done.

What’s surprising is that labour costs haven’t risen as the pool of jobseekers has shrunk.

Why is that? And why is the OCR so low in a time of high growth? And why is business confidence dropping? And why isn’t inflation growing as expected?

All good questions…and each leaving economists scratching their heads.

Maybe we’re experiencing something that isn’t in any economics textbook.

We’ll dig deeper tomorrow when we investigate Nolan’s final five indicators.

Best,
Taylor Kee
Editor, Money Morning New Zealand


Taylor Kee is the lead Editor at Money Morning NZ. With a background in the financial publishing industry, Taylor knows how simple, yet difficult investing can be. He has worked with a range of assets classes, and with some of the world’s most thought-provoking financial writers, including Bill Bonner, Dan Denning, Doug Casey, and more. But he’s found his niche in macroeconomics and the excitement of technology investments. And Taylor is looking forward to the opportunity to share his thoughts on where New Zealand’s economy is going next and the opportunities it presents. Taylor shares these ideas with Money Morning NZ readers each day.


No Thoughts on Here’s What Five Indicators Tell About New Zealand Today

Leave A Comment

Wealth Morning Stock Market News, Finance and Investments