1. Consumer spending is looking better …. or worse
There were some slightly contradictory messages in the data early last week, with Stats NZ reporting that spending on electronic cards rose strongly in December (core retail +1.8% monthly), but then the BNZ-BusinessNZ Performance of Services Index remained in contractionary territory for the 10th month in a row. To be fair, I probably wouldn’t get too fixated on the different patterns; it’s more just a sign that our economy remains generally subdued/patchy and without a clear upward trend yet. It really just adds further support to the case for another OCR cut on February 19.
2. Inflation well within target, as expected
On top of the patchy economic data, we also got further confirmation last week of subdued inflationary pressures. Headline consumer price inflation for Q4 came in at 2.2%, unchanged from the Q3 result. The non-tradable/domestic component (such as rents and council rates) eased to 4.5%, while the tradable component (e.g. petrol) was -1.1%. That split of the data wasn’t quite as anticipated, but the overall net result was still in line with expectations. As such, there was nothing here to radically alter the outlook for another 0.5% Official Cash Rate cut in February, as the Reserve Bank looks to kickstart the economy again and ward off the risk that inflation gets too low (or even negative) at some point down the track
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3. Net migration remains subdued
Stats NZ reported last week that November’s net migration balance was 2200, which meant the annual running total dropped further, now sitting at around 30,600 – the lowest since December 2022. It’s difficult to know how much further it falls, and indeed may actually settle down at around that figure on a more sustained basis. But with the supply of available rental listings now high, the slowdown in migration and hence overall population is already seeing rental growth hold down at low levels.
CoreLogic chief economist Kelvin Davidson: "The year ahead may not be an economic boom, but it should at least fare better than 2024." Photo / Peter Meecham
4. Watching jobs and confidence
Coming up this week: Stats NZ will publish December’s filled jobs figures on Tuesday and ANZ will publish their business and consumer confidence surveys for January on Thursday and Friday respectively. It’ll be an interesting batch of data releases, given some hints in the November jobs data that labour market conditions aren’t collapsing, and that other sentiment indicators suggest a slow improvement in the economy. The year ahead may not be an economic boom, but it should at least fare better than 2024.
5. Back to the mortgage market again too
There’s been a lot of coverage of lending activity recently, and this week we’ll get another update of the figures from the Reserve Bank, relating to mortgage flows in December. It’d be no surprise to see a continuation of the recent upward trend for overall home lending activity, but my focus will be on the various cuts of the figures – e.g. split by loan-to-value ratio and debt-to-income ratio. The big picture lately is that high LVR (or low deposit) lending has been relatively muted, as has high DTI activity. But with internal servicing test rates at the banks having fallen, it’s going to be intriguing to see if/when high DTI lending starts to rise more appreciably again – and hence when the caps (six for owner-occupiers and seven for investors) potentially start to become a bigger factor.
- Kelvin Davidson is chief economist at property insights firm CoreLogic