by Nick Clark, Federated Farmers Manager General Policy
Fonterra lifts payout forecast
Fonterra has lifted its farmgate milk price forecast for the current 2020/21 season to a range of $7.30-$7.90 per kgMS with a midpoint of $7.60. This is up from its previous range of $6.90-$7.50 and midpoint of $7.20.
Fonterra said its milk price will contribute more than $11.5 billion to the New Zealand economy through milk price payments this year. The forty cent increase in the forecast midpoint equates to around $600 million in increased payments to Fonterra’s 10,000 suppliers, much of which will be spent in local and regional economies.
The lift in milk price forecast comes as no surprise after the recent strong run of GDT auctions and after economists had lifted their forecasts.
Food prices down
Food prices dropped in February, according to Statistics NZ’s monthly Food Price Index.
Comparing February 2021 with January 2021, food prices were down 0.9% (and down 0.6% when seasonally adjusted), with:
- Fruit and vegetable prices down 2.4%, with fruit down 3.6% and vegetables down 1.3%.
- Meat, poultry, and fish prices down 1.2%, with beef and veal down 3.8% and mutton, lamb, and hogget unchanged.
- Grocery food prices down 1.2%, with bread and cereals down 1.5% and milk, cheese, and eggs down 0.8%.
On an annual basis, comparing February 2021 with February 2020, food prices were up 1.2%, with:
- Fruit and vegetable prices up 5.1%, with fruit up 2.9% and vegetables up 7.2%.
- Meat, poultry, and fish prices down 2.4%, with beef and veal down 2.6% and mutton, lamb, and hogget down 1.9%.
- Grocery food prices down 0.6%, with bread and cereals down 1.0% and milk, cheese, and eggs down 0.5%.
Annual food price inflation has been dropping since August 2020 when it was 4.2%. The current rate of 1.2% is the lowest since mid-2019. The recent increase in international commodity prices may put upward pressure on food prices, especially for meat and dairy products, while for fruit and vegetables impacts on supply, like the weather and labour shortages, will also be an important factor.
Card spending falls
Retail card spending fell in February with the ongoing impact of border restrictions on international tourism exacerbated by the lift in Covid-19 alert levels.
Statistics NZ’s monthly Electronic Card Transactions showed a $256 million (or 3.2%) drop in seasonally-adjusted electronic card spending between January and February 2021. Spending on retail industries was down 2.5%, with consumables (i.e., groceries, liquor, specialty foods) down 0.8%, durables (i.e., furniture, electrical, hardware, recreational, department stores, etc) down 0.4%, apparel down 2.8%, fuel down 0.8%, and vehicles down 3.6%.
Looking at the annual picture, in actual terms electronic card spending decreased by $632 million (8.1%) between February 2020 and February 2021. The hospitality sector continued to be hit hard, dropping by $182 million (15.8%). In particular, spending on accommodation shrank by $112 million (42.6%). The lack of international tourists is being felt hard at what would normally be a peak period.
Housing market continues its surge
February saw the highest number of residential properties sold in a February month in 14 years, the median sales continued to soar, and the median days dropped sharply, according to the Real Estate Institute of New Zealand’s Residential Property Data.
The number of house sales in February 2021 was 7,964 up 14.6% on February 2020, with growth particularly strong in Auckland, up 34.6%. Sales across the rest of New Zealand were up a more modest 6.1%, although there were big increases for West Coast (up 58.0%) and Taranaki (up 31.4%), albeit off much smaller numbers.
The median sales price for February 2021 was $780,000, up 22.8% on February 2020’s $635,000. Auckland’s median was up 24.3% from $885,000 to $1,100,000. The median price for the rest of New Zealand was up 19.1% from $550,000 to $655,000. There were particularly big percentage increases for Hawkes Bay (up 36.4%), West Coast (up 32.9%), and Gisborne (up 32.2%). The smallest regional increase was Tasman, up ‘only’ 12.8%.
The median days to sell in February 2021 was 30 days, down 6 days from February 2020. This is the lowest days to sell for a February month in 17 years.
Commentators think at least part of the further surge in the market was from people wanting to beat the reimposition of LVR restrictions. They expect from here that the rate of sales price growth to ease back from the current peak – but not to go negative.
March drop in business confidence
The preliminary data from ANZ’s Business Outlook Survey for March was a mixed bag.
Headline business confidence fell 7 points a net 0.0% expecting general economic conditions to improve over the next 12 months. The activity outlook also fell 4 points to a net 17.4% expecting their own activity to increase.
However, some of the details were stronger, with employment intentions up 5 points and capacity utilisation up 2 points. Investment intentions were little changed. Cost and inflation pressures continue to rise, with expected costs rising 2 points to a net 74% expecting higher costs ahead. More firms are intending to pass the costs on where possible, with a net 49% of firms intending to raise their prices, up 3 points. Inflation expectations for the year ahead also lifted to nearly 2.0%.
The final results for March will be released at the end of the month.
Jobs ads slip
The monthly BNZ-Seek Employment Report has shown a petering out of momentum in job advertising during February.
Job adverts were down a seasonally-adjusted 0.3% for the month. Annual comparisons were also on the negative side, with ads down 2.3% on February 2020. The situation in Auckland was particularly tough with job adverts down a seasonally-adjusted 3.1% for the month and down 12.3% on February 2020. In contrast Southland and Otago were both up strongly month-on-month.
By sector, tourism and hospitality took another hit with job adverts down 5% month-on-month. The farming, animals, and conservation sector was also down by 2%.
Traffic volumes rise
ANZ’s monthly Truckometer Index has shown traffic volumes rising in February.
The Light Traffic Index rose 1.0% in February compared to January, while the Heavy Traffic rose 2.0%. Both traffic indexes are higher than a year ago (by 4.1% and 3.9% respectively), but the overshoot following the post-lockdown bounce continues to dissipate gradually.
The heavy traffic index is mainly about the movement of goods, while the light traffic index is mainly about the movement of people. According to ANZ, in normal times, the light traffic index provides a six-month lead on momentum in the economy, while the heavy traffic index is a real-time indicator of goods production. It is a timely barometer for economic activity.
Manufacturing up despite fall in dairy and meat processing
Manufacturing sales volumes in the December 2020 quarter rose slightly from the September quarter, according to Statistics NZ’s quarterly Business Financial Data.
When seasonally adjusted, total manufacturing sales volumes rose to $26.8 billion, up 0.5% ($142 million) from the September 2020 quarter. Volumes are slightly above levels seen before Covid-19 hit in early 2020.
By industry, dairy and meat product manufacturing had the largest value fall, down $288 million (3.2%) in the December 2020 quarter, mainly due to falling prices. After adjusting for price effects, the volume of meat and dairy product manufacturing was relatively steady, down 0.1% from the September 2020 quarter.
Jobs down in 2020
Filled jobs in the December 2020 quarter fell by 0.9% or 18,750 jobs, compared with the December 2019 quarter, according to Statistics NZ’s quarterly Business Employment Data.
The national fall is the first year-on-year fall since the PAYE- tax-based series began in June 2011 and it follows slowing growth in filled jobs in the September and June 2020 quarters.
Several tourist areas of the South Island and Auckland had large falls, while the rest of the North Island fared better.
Despite there being fewer jobs, the amount paid wages and salaries increased. For the year ended December 2020 compared with the year ended December 2019 total gross earnings increased by 2.8% ($3.5 billion) to $131 billion.
Building work down
The volume of building work in the December 2020 quarter dropped after the previous quarter’s rebound, according to Statistics NZ’s quarterly Building Work Put in Place statistics.
Total building volume fell a seasonally-adjusted 1.5% in the December 2020 quarter, with residential work up 0.7% and non-residential work down 4.9%. This was after big increases in the September quarter (+33.5% for total work, +35.0% for residential work, and +31.3% for non-residential work) as activity bounced back from the lockdown-impacted June quarter.
The value of total building work was $6.73 billion in the December 2020 quarter, up 2.7% from the December 2019 quarter. Residential building work was worth $4.52 billion, up 8.1% on December 2019. Non-residential building work was worth $2.22 billion, down 6.8%. Farm buildings worth $78 million were put in place, up 0.5% on December 2019.
For the full year-ended December 2020, the total value of building work was $24.15 billion, down 5.0% on the year to December 2019. Residential building work of $15.78 billion was down 2.4% for the year while non-residential building work of $8.37 billion was down 9.6%. Farm buildings worth $287 million were put in place, down 18.6% for the year.
Looking ahead recent big increases in building consents, especially for residential buildings, should see increases in building work put in place.
Council rates rose and worse to come
As councils start consulting on their long-term plans, Statistics NZ’s quarterly Local Authority Statistics paint an interesting picture of the local government sector’s finances in the year of Covid.
For the year ended December 2020, rates revenue amounted to $6.68 billion. While income from rates (up 5.0%) and from grants, subsidies, and donations (up 27.3%) were both up compared to the year to December 2019, income from regulatory income and petrol tax, from investment income, and from sales and other operating income were all down, to be expected given the disruptions from lockdowns and economic impacts of Covid. Total operating revenue was up 3.0% to $11.88 billion.
On the spending side, although interest expenditure was down (thanks to lower interest rates), other expenditure categories continued to rise. As a result, total operating expenditure was up 3.8% to $11.98 billion.
Despite many industries and residentials still struggling in the wake of Covid-19, many councils are signalling big rates increases for this year. Tauranga City is proposing a 22% increase and Environment Canterbury a 24.5% increase, to name two of the biggest so far. Ouch.
Next week
Next week’s big economic news will be December quarter’s GDP. Forecasting GDP has become increasingly challenging in a Covid world so don’t be surprised if the June quarter’s slump and the September quarter’s bounce-back are revised up or down. The December quarter is likely to be flat overall but again don’t be surprised if comes in higher or lower than expected!
What can be expected is data showing decidedly mixed fortunes for industries, with some struggling (especially accommodation, transport, and education) and some doing well (e.g., construction, health care, and public administration and safety). Agriculture is likely to have had a mildly positive quarter (and year) and nowhere near as volatile as other industries.
NIWA Soil Moisture Data
NIWA’s latest soil moisture maps (as at 9am Thursday 11 March) show most of the North Island’s soils being dryer than usual, particularly in the eastern Bay of Plenty and Gisborne-Wairoa. Far North, Taranaki and Horowhenua are the main exceptions in the North Island. In the South Island, the relatively driest areas are coastal Hurunui, South Otago, and eastern Southland, while Buller and southern Fiordland are significantly wetter than usual.
Exchange Rates
The NZ Dollar was relatively stable overall, down 0.1% against the TWI. It was more mixed against key trading partners, with ups and downs.
Source: Reserve Bank of NZ
Wholesale Interest Rates
Over the course of the week the yield for the 90 Day Bank Bill was up 1 basis point. The 10 year Government Bond yield was down 3 points.
The Reserve Bank will next review monetary policy settings (including the OCR) on 14 April.
| This Week (11/3/21) | Last Week (4/3/21) | Last Month (11/2/21) | Last Year (11/3/20) | |
| OCR | 0.25% | 0.25% | 0.25% | 1.00% |
| 90 Day Bank Bill | 0.32% | 0.31% | 0.29% | 0.91% |
| 10 Year Government Bond | 1.77% | 1.80% | 1.37% | 1.00% |
Source: Reserve Bank of NZ
