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Consumer spending has established a degree of confident growth over the past year. Consistent with more positive sentiment as to employment and business prospects, household spending has strengthened. Spending figures have also been assisted by the strength of the NZ$, which has restrained the price of imported items and so increased their attractiveness.
As measured by electronic card transactions, growth in retail spending is currently running at between 5.5 percent and 6 percent per annum. Within the sector, strong growth is now being recorded in retail demand in the services (e.g. hairdressing, drycleaning, equipment repair) and hospitality (including accommodation and restaurants) sub-sectors. Spending in both of these sub-sectors are now, respectively, 16 percent and 11 percent higher than year-earlier levels.
Most noticeable, though, is the strong growth in motor vehicle sales. This is evidenced by both the electronic transactions data for the motor vehicles sub-sector (up 11 percent) and the number of new car registrations (up 20 percent).
As illustrated, the year to May 2014 saw the number of new car registrations total about 196,000. This is now back to the levels recorded in early 2008 and is well above the trough experienced in 2009.
Interestingly, the growth in car registrations has been relatively widespread. Indeed, only the Gisborne-Hawke’s Bay, Wellington and Manawatu-Whanganui regions have grown slower than the national average of 20 percent.
The latest year has seen Toyota retain by far the largest market share. However, with growth at only 13 percent, Toyota is below the average increase. Further, this is well behind the pace set by rivals Nissan and Mazda who have both recorded a more than 30 percent surge in registrations over the last year. Volkswagen, Mitsubishi, and BMW have also registered more than 30 percent annual growth, although percentage growth figures for these makes are off a much lower base figure.
The latest Business New Zealand Performance of Manufacturing Index (PMI) confirms that the manufacturing sector continues to expand. The 3-month average for the PMI currently stands at just under 56. This is well above the benchmark 50 level, which indicates an expansion. Consequently, this indicator suggests that the manufacturing sector has been in expansion for close to two years.
Noticeably, all sub-components of the PMI are contributing positively to this result. In particular, as illustrated, the employment indicator is well above the 50 mark, and is also on the rise. Production, new orders, finished stocks, and deliveries sub-indices all tell a similar story.
In a similar vein, the PMI for all four regions are at healthy expansion levels – with the latest 3-month averages ranging from 55 to 57.
Statistics New Zealand data also confirms that manufacturing is now participating in the recovery. Activity over the year to March was close to one percent higher than the previous year.
Within the sector, non-metallic mineral products (e.g. ceramics, glass), chemicals, furniture & other manufacturing, and wood products all recorded strong expansion. Growth in these sectors is related to, and consistent with, the ongoing surge in construction activity.
The borderline result for transport equipment and machinery is expected, noting that manufacturing exports remain below year-earlier levels.
It is also pertinent to note that the decline in dairy and meat processing activity is a hangover from last year’s drought affected June quarter, which remains in the latest annual figures.
Construction activity continues to be the driving engine of economic growth in New Zealand. Data on building work put in place reports construction activity of more than $13 billion over the year to March 2014. This is the highest 12-month total since mid-2008, with a strong pick up recorded since the trough of two years ago.
The strong pick up is undoubtedly dominated by the residential building sub-sector. In particular, the 17 percent growth in the latest year included a more than 26 percent increase in house building, but only a 4 percent rise in activity in the non-residential building sub-sector.
Across the country, the surge in building activity is clearly dominated by that in the Christchurch area. Canterbury building activity was recorded at more than 37 percent up on the previous year, with all other regions close to or well under the national average growth of 17 percent.
This picture is confirmed by latest numbers on building consents. As illustrated, residential consents in Canterbury are well above the pre-2008 peak. However, new housing consents across the rest of New Zealand remain well below the pre-2008 peak.
Nationally, the 12-month total of new housing consents issued is currently running at just under 23,000. This is the highest annualised total since the year to June 2008. Noticeably, despite the strong rise, the latest figures continue to be below the 25-30,000 range regularly reached during the mid-2000s. Indeed, house building activity remains well below the historical highs of close to 40,000 per year, recorded in the early 1970s.
Global growth watchers were caught on the hop when GDP figures for the United States were revised to show a significant decline in activity in the March quarter.
The level of activity in the March quarter was recorded as 0.7 percent below that in the December 2013 quarter. This reduction included noticeable falls in private business investment and export activity. This sees US annual growth falter to now be only 1.5 percent.
On the plus side there continues to be good news on the job front. Welcome reductions in unemployment are being posted, with the jobless rate now at 6.3 percent – down from 7.5 percent a year ago. Further, job numbers have now exceeded pre-crises peaks, with 2.4 million jobs (or 1.7 percent) added over the past 12 months.
Nevertheless, concern continues as to the stuttering pace of expansion, along with a view that jobless numbers may be masking increasing underemployment. In this context, it is not surprising that US Federal Reserve continues to be in no hurry to change its monetary policy stance.
Clearly, an increase in the currently historically low interest rates remains off the agenda for some time yet. Meanwhile the tapering in the bond purchase program (quantitative easing, or QE3) is proceeding as previously planned.
Given the outlook for ongoing easy monetary conditions, stock market indicators continue to reach new heights. Market watchers are ready to celebrate the benchmark Dow Jones breaking the 17,000 mark. However, many commentators remain uncomfortable with the apparent disconnect between real economic indicators and corporate stock values.
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