Don't count your chickens ...

OPINION: Just so that you can sound intelligent when next discussing the state of the economy, here are some numbers that give insight into what has been happening in New Zealand recently, writes Tony Alexander this week.

First, confidence levels have risen quite strongly.

Our monthly BNZ Confidence Survey for early September showed a record net 56 per cent of respondents expect the economy to improve over the coming year.

In August, this reading was a then-record of 42 per cent and back in March the result was a net 23 per cent pessimistic.

Consumer confidence measured in the Westpac McDermott Miller quarterly survey rose to 106 in the June quarter from 96 in the March quarter where 100 is neutral and a year earlier the reading was just 82.

There is no real sign that outside of housing and cars (very mild) consumers are actually spending more as yet.

Retail spending after removing seasonal factors and the ever-volatile automotive sectors fell in both June and July.

But in the three months to August, car registrations were up 10 per cent from the three months to May after removing seasonal factors.

House prices have increased 6 per cent since January, turnover in the three months to August was ahead 39 per cent from a year ago although agents report listings shortages.

And the number of consents issued for new dwellings rose 4 per cent in the three months to July from the three months to April.

Businesses are reacting to their rising optimism with a net 2 per cent in the NBNZ monthly survey saying they plan boosting capital spending. This is well up from 19 per cent planning to cut it in February.

But the result is well below the +10 per cent average outcome.

And employment intentions at -2 per cent are also below average. But that average is not too far away at +3 per cent and this reading was a horrible -28 per cent in March, while anecdotes indicate rising job advertising and employers on the hunt again.

It is, however, going to be quite a few months before we get actual data showing what is happening with business investment and jobs growth or reduced shrinkage.

But if lending data is anything to go by, things are actually worse than the investment intentions data might suggest.

In the three months to July non-rural business sector debt shrank $1.4b.

A year earlier it grew $2.4b, two years ago $3.5b, three years ago $2.6b.

With regard to exports, things frequently get moved around by sometimes big commodity price changes, whether dairy inventories are being run down or not, and whether seasons are late or early.

But keeping these caveats in mind we can see that there is no export-led upturn under way.

In the three months to July the value of exports was down 3.6 per cent from a year earlier.

This sounds bad, but we have to remember that it will take a while for the economic recovery offshore to show through in these numbers.

We know this because even though we can see good signs of life in our own economy the import numbers definitely do not show it. In the three months to July the value of all imports was down 17 per cent from a year ago.

Obviously fuel accounted for a lot of that, but even consumer goods imports (not cars) were off 1 per cent, which is the worst annual rate of change since August 2007.

Frankly, you cannot look at NZ data and see any unusual strength outside of the housing market as we largely predicted.

So one cannot yet run an argument that things are all fine and dandy, and it would be unwise to get too optimistic given the continuing uncertainty about world growth, credit availability and so on.

The climate remains ripe for well capitalised firms and investors to pick up good assets.

But for those with struggling cash flows and inadequate balance sheets, expansion to take advantage of the buying environment is not really an option.

» Tony Alexander is the chief economist for the Bank of New Zealand.

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