Economic Week - February 8

by Nick Clark

Unemployment rises

Unemployment increased by 10,000 in the December 2018 quarter, according to Statistics NZ’s Labour Market Statistics.  The unemployment rate rose from 4.0% to 4.3% although it remains slightly lower than a year ago (4.5%). 
The number of people employed rose by just 2,000 (or 0.1%) to 2.664 million.  It was up 60,000 (or 2.3%) for the year.
The employment rate the labour force participation rate both fell in the quarter back to similar levels to December 2017.
Wage inflation was stable at 0.5% for the quarter and on an annual basis it edged up from 1.9% to 2.0%, just slightly higher than the 1.9% rate of consumer price inflation.  
It will be interesting to see what the Reserve Bank makes of this data give that employment maximisation is now one of its required objectives.  It will be reviewing the OCR next week.

January lift for Commodities
The ANZ World Commodity Price Index started the year strongly with a 2.1% lift in the month of January, arresting the downward trend throughout the second half of 2018.
Dairy products were the main upward driver, with the dairy sub-index rising 5.4%.  Meat and wool prices were up 0.6%, with beef prices up 1.2%, lamb prices down a similar amount, and wool prices up marginally.
The NZ Dollar dropped in the month, so this provided a further boost for commodity prices, pushing the NZ Dollar index up 2.9%.
On an annual basis, comparing January 2019 with January 2018, the World Commodity Price Index was down 2.1% but the NZ Dollar Index was up 3.8%.

Dairy prices strengthen
The Global Dairy Trade posted a strong gain at this week’s auction, with the GDT Price Index up 6.7% on the last auction three weeks ago.
The biggest commodity by volume, whole milk powder, jumped 8.4%.  There were also rises for all the other commodities on offer, bar one (butter milk powder). 
The average selling price was $US3,265 and 23,326 tonnes of product were sold.
This was the GDT’s fifth rise in a row since the start of December.  Since its low point in late November the GDT Price Index has risen 18.8% but it is still down 5.3% on the same time last year.
Economists are now more optimistic that if prices hold or push up further Fonterra might be able to increase this season’s farmgate milk price from its current range of $6.00-6.30 per kg milk solids.

Bigger than expected surplus
The Government’s surplus has once again beaten expectations on the back of higher than expected tax revenue and lower than expected operating expenditure.
The Financial Statements for the six months to 31 December 2018 showed the preferred operating balance before gains and losses (OBEGAL) was a surplus of $1.1 billion, $251 million higher than forecast in December’s half-yearly economic and fiscal update. This was largely driven by core Crown revenue being $164 million higher than expected and core Crown expenses $399 million lower than expected.
While OBEGAL delivered a positive result, unfavourable market conditions meant there were net losses in investment income.  This pushed the overall operating balance (after gains and losses) to a deficit of $5.6 billion.
Net Crown debt was $61.1 billion, $81 million more than expected but close to the expected 22.0% of GDP.

Building consents up
Statistics NZ’s monthly statistics of Building Consents Issued showed that for the year ended December 2018, the number of new dwellings consented was 32,996, up 6.1% from the December 2017 year.  This is a 14-year high but still well behind 1974’s record year of 40,025.
The annual value of non-residential building work consented was $7.1 billion, up 9.0% from the December 2017 year.  It was a strong year for farm buildings with $382 million consented, up 39.9% for the year and the highest annual value since December 2008.

NIWA Soil Moisture Data
NIWA’s latest soil moisture maps (as at 9am Thursday 7 February) show conditions continuing to dry out.  Most of the country is now dryer than normal for this time of year, and this is particularly the case in western areas of the North island and the Nelson-Buller areas of the South Island. 

Exchange Rates

Thursday’s softer than expected employment data surprised markets.  With suggestions it could make our Reserve Bank more ‘dove-ish’ in next week’s OCR review and Monetary Policy Statement, the NZ Dollar fell against all currencies, including more than a cent against the US Dollar.  The NZ Dollar was down for the week against all our major trading partners, except with Australian Dollar, where its Reserve Bank made what markets interpreted as a dove-ish statement earlier in the week.


NZ Dollar versus

This Week


Last Week (31/1/19)

Last Month (7/1/19)

Last Year (7/2/18)

US Dollar





Australian Dollar










UK Pound





Japanese Yen





Chinese Renminbi





Trade Weighted Index





Source: Reserve Bank of NZ


Wholesale Interest Rates

Over the course of the week, the 90 Day Bank Bill rate was relatively stable, but the 10 Year Government Bond rate continued its recent run of falls to sit at just 2.15%.   The OCR, which has been unchanged on 1.75% since November 2016, will be reviewed on 13 February.  Expect no change to the rate but of more interest will the Reserve Bank signals for its future direction and whether it will be influenced by the softer than expected employment data.



This Week


Last Week (31/1/19)

Last Month (7/1/19)

Last Year (7/2/18)






90 Day Bank Bill





10 Year Government Bond





Source: Reserve Bank of NZ