What ANZ staff are reporting to their bosses

Banking / opinion

Frontline ANZ staff report in what they see in the economy from their clients. These anecdotes paint a picture of a domestic economy in November that was struggling on many fronts

21st Dec 23, 11:07am by admin

Bankers listening ...

Here is the summary of the December edition of ANZecdotes released by ANZ today. It is a bi-monthly snapshot based on economic anecdotes collected from ANZ staff across New Zealand over 1 November – 4 December 2023. This reflects generalised views of individuals, which have not been data-checked. It does not represent the views of ANZ Research or ANZ Bank.

Frontline staff report a patchy economy, with a tougher environment seeing a wider range of performance between firms, and cashflow becoming an increasing issue.

Many retailers are focused on destocking and cutting costs (including labour and investment) in the face of weak demand, particularly for premium products with customers trading down.

The manufacturing pipeline is looking empty.

The housing market is experiencing a pickup, but in a very patchy way, with very diverse anecdotes from the various regions.

Meanwhile, although the commercial building pipeline is drying up, interest in buying commercial property is starting to return.

Finding labour has becoming far easier due to the surge in migration and easing labour demand and redundancies, but pockets of skill shortages persist.

The freight sector is under significant pressure as volumes fall.

The dairy sector is taking heart from recovering dairy prices but watching its pennies closely.

The red meat sector is more pressured, with prices remaining low.

Farmers are wary of a dry summer.

The forestry sector is struggling with weak demand from China and cooling domestic construction.

Anecdotes about construction costs varied by region, but capacity is clearly opening up in the sector due to weaker activity and imported labour.

Tourism remains a bright spot.

Services have been relatively resilient, though pressures are starting to emerge in spots. Hospitality in tourism regions is outperforming but times are generally tough as discretionary spend is reduced.

Firms are having some success in pushing back against cost increases and even getting some previous increases rolled back.

Cost inflation is evident in interest rates, wages and rents.

The full December ANZecdotes report is here.

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48 Comments

by JimboJones | 21st Dec 23, 12:25pm 1703114707

It doesn’t paint a pretty picture. A few rate cuts next year may change things.

Never ignore how important sentiment is to our economy. Sure there are many people that have to cut spending, but there are also many who choose to cut spending and pay more debt or save due to sentiment that the economy is doing badly. Even a small OCR cut could signal happier times ahead.

by mja | 21st Dec 23, 12:29pm 1703114996

While in Australia during the GFC, I worked for a friend with an 8 figure net worth. He was going to buy a new Jaguar, but stated he held off because the economy was tanking. He said it's the weirdest thing, because I have no debt and the car relatively speaking is not a lot of money, but he couldn't bring himself to spend the money. So sentiment is huge.

by J.C. | 21st Dec 23, 4:48pm 1703130483

Used to attend CES (Consumer Electronics Show) in Vegas pre- and post-GFC. Some memories:

Pre-GFC -- Lively chat with the Filipino cab driver who owned two rental properties in Greater Las Vegas. Great guy who I admired for his ambition, work ethic, and belief in the American Dream.

Post-GFC -- Visiting big box retailers and home theater custom installation specialists in the suburbs of Vegas talking with salespeople and their tales of how store traffic and sales had fallen off a cliff. Custom installers hanging on to HNW customers, but the Johnny-come-lately property punters owed them big debts.

by Xristina | 21st Dec 23, 9:59pm 1703149147

Oh you were in the US same time as me then. Left the week it all came tumbling down and stocks halved overnight.

by Te Kooti | 21st Dec 23, 12:35pm 1703115350

Rates were too low for a decade and it created all manner of distortions. A period of high rates is required to rebalance the economy following an unprecedented fiscal transfer from the State to the consumer. Plus savers are now earning additional income, there is no mention of that.

Savers have subsidised borrowers for too long. If rates drop now house prices will shoot back up making it harder for FHB again. There is no free lunch, we can only live beyond our means for so long before a period of belt tightening and austerity is required.

by Nifty1 | 21st Dec 23, 12:44pm 1703115872

If rates drop now house prices will shoot back up making it harder for FHB again

It hasn't been improved with the current scenario... FHBs continue to be locked out with increasing rates - affordability has declined massively.

by Te Kooti | 21st Dec 23, 1:02pm 1703116960

Solving for the same monthly mortgage payment on the same property, would you rather pay more for it in a lower rate environment, or a lower price in a higher rate environment?

I know which I'd prefer, housing affordibility won't change much in either scenerio except a brief window of opportunity.

by JimboJones | 21st Dec 23, 1:26pm 1703118363

More in a lower rate scenario any day assuming the repayments are the same. You end up with a lot more equity at the end.

by Snow | 21st Dec 23, 2:08pm 1703120914

Would've thought it'd be the other way around as generally rates have been decreasing over time. So if you can afford P&I payments for a low buy price and higher rates then more likely rates will drop and you'll be able to pay more principle off.

High purchase price and low rates isn't working out too good for the recent buyers at the moment is it.

by Te Kooti | 21st Dec 23, 4:24pm 1703129065

No Jimbo, surely you would much rather pay less for the house with the ability to have lower repayments once rates fell. This is the scenario boomers are criticised for, being able to buy cheaply and reap higher house prices once rates fell.

by Nzdan | 21st Dec 23, 4:46pm 1703130373

Precisely. It's the size of the principal amount that determines how effective/ineffective things like pay increases/bonuses are.

$200k mortgage @ 20% = $3357 over 25 years
$500k mortgage @ 6.5% = $3370 over 25 years.

Add $200 per month to repayments, the $500k drops to 22 years. The $200k drops to 14 years. B-b-b-b-b-but 20% interest rates are so crippling....

by JimboJones | 22nd Dec 23, 6:50am 1703181033

But after that 14 years you only have $200k equity. Sure it means you can spend / invest elsewhere, but you are probably poorer in total.

The main thing you actually want is highish inflation, then you do get big pay rises and your original purchase price starts to become irrelevant.

by hootenany | 22nd Dec 23, 8:28am 1703186899

Unless you as speculating on property prices, and should be paying capital gains tax. It doesn't matter. If you are FHB then the price of the house you live in is irrelevant, its the same place irrelevant of the price.

After 22 years you may have more equity since you can spend the next 8 years investing in other stuff and have a freehold house.

With low interest house prices go up in price faster, you will have more equity, but that is precisely what has got us in the mess we are in now, lots of easy cheap credit making house prices insane. Not to mention the cost of upgrading or maintenance are much higher. If house prices are 200,000 nobody is going to charge you 100,000 for a driveway.

I think people should be, you know working and producing stuff to make money no sitting arse and making money from property prices increasing.

by swapacrate | 22nd Dec 23, 9:49am 1703191751

Are we living in houses or putting them on supermarket shelves to make a margin.

by JimboJones | 22nd Dec 23, 6:45am 1703180718

I was comparing a permanently higher rate scenario to a lower one. You are adding a third scenario, one where rates start high but get lower (a repeat of the last 30 years). Yes that scenario is obviously a better one for the buyer.

by meh | 21st Dec 23, 9:20pm 1703146802

Lower debt at higher rates encourages one to pay off the mortgage earlier (15 years rather than thirty), the goal being a freehold home and flexibility with the freed up income. It's how the boomers did it.

The whole more equity thing is a recent phenomenon and not sustainable. It's corporate finance speak overflowing into everyday living. A great earner for the banks though. It only serves the debt leverage model and look at what that's done for us.

by JimboJones | 22nd Dec 23, 6:54am 1703181293

I know people living in countries with cheap housing or great tenancy laws. All of them own bugger all despite having good incomes. Compared to friends in Auckland, most being millionaires. So it does work for some people.

by Blackbeard | 21st Dec 23, 1:23pm 1703118210

I agree. The big problem is housing is far too expensive (thanks to low rates), it’s sucking up consumer dollars that in a balanced economy would go into the other sectors mentioned in the article. But the banks won’t say that, they just want lower rates to lend more into the housing market..exasperating the initial problem. Simply put - The banks are greedy.

by Zwifter | 21st Dec 23, 1:13pm 1703117620

I think its fair to say most people buy a house to just live in and they only own one. Once you own your own home you don't want to ever go back to renting. People are looking at the lifestyle, greed doesn't come into it really.

by Blackbeard | 21st Dec 23, 1:26pm 1703118390

I’m talking about bank greed, the consumer needs to be saved from itself. Higher rates do that.

by nktokyo | 21st Dec 23, 2:21pm 1703121710

Higher rates means higher bank profits because their expenses don't reduce.

by hootenany | 22nd Dec 23, 8:39am 1703187582

No it doesn't banks lend on margins, they borrow from one person and lend to another, and charge x percent more. So a higher OCR means higher costs for the bank. What does increase banks profits is higher house prices, meaning people have to borrow more, and take longer to pay off that borrowing. The optimum situation for a bank is for you to spend your working life paying off your mortgage and then get a reverse mortgage and give them everything back before you die.

Also once house prices are high it is absolutely not in the banks interest for house prices to fall, that is their backup if you can't meet your repayments, if the house price is below how much you owe them, they are in trouble. It is OK if it happens for a few people, but if this is a major trend and a lot of people go bankrupt they are screwed.

by Blackdog | 23rd Dec 23, 7:46am 1703270763

look at the recent drop in swap rates, the banks are making record profits. They should be broken up, too much power over the economy sits with a handful of foreign banks.

by Nzdan | 21st Dec 23, 1:19pm 1703117956

The current median rent in NZ is $580 pw. Imagine if average rents were $100 pw less? Would any businesses say no to that extra spending power reaching other parts of the economy?

But the problem with dropping rent by $100? Many will say "b-b-b-b-but how will the landlord pay the mortgage?". Bingo, there's the problem. In a lot of cases, the house already existed and cost less to build new than the current mortgage over the property. Housing is a non-discretionary expense, i.e. it's the first thing that comes out of your pay if you don't want to live under a bridge, so in a way it's legalized extortion if you're a renter.

by hootenany | 22nd Dec 23, 8:59am 1703188795

No its not legalized extortion, you are free to find another house to rent, just like food is essential too. However the number of landlords is orders of magnitudes greater than the number of supermarkets. If anything is legalized extortion its tax, although that too is hyperbole we should also pay our fair share.

Also we need less spending power not more, it myopic to think that we can spend our way out of this. This is what has lead to the environmental crisis we are in now, an economy produce stuff people don't need for the sake of growth.

Of course every business wants people to spend more, who doesn't want more money? That doesn't mean it is good overall.

by ChrisOfNoFame | 21st Dec 23, 2:24pm 1703121885

re ... "The big problem is housing is far too expensive (thanks to low rates)"

Is that the reason?

Or is it because Councils and territorial authorities have been restricting land supply while denying high density housing (while under-investing in infrastructure) for far too long? Auckland Council got stuck into partially solving this issue in 2016. Since then lots more housing has come onstream and it actually caused a house price flatline between 2016 and RBNZ inspired covid madness. (See REINZ graphs on this site.)

Almost all economists that have looked at this issue haven't concluded the relationship between interest rates and house prices has much to do with it.

The relationship between house prices and interest rates is akin to bond prices, i.e. interest rates go up, house prices go down., and visa versa. And when the RBNZ threw heaps of money into the economy and withdrew regulation (e.g. LVRs) as they did for covid then the movements become extreme. Fast up and then fast down.

Normal service will resume with normal interest rate movements. The next low in rates (unless the RBNZ seriously stuffs the economy by holding rates high for too long) will be the RBNZ's 'natural rate' plus the bank's margins, i.e. 2.5% + 2.0% is about 4.5%.

How long will it take to get down to 4.5%? If business stop raising prices so wage earners stop asking for pay raises then about 18 months to 2 years. (And by then DTIs will be well in so landlords will require far greater deposits to compete against FHBs.)

by KH | 21st Dec 23, 7:57pm 1703141861

You think it a supply problem. But there is a gross over demand problem.

We are in the middle - perhaps just the start - of a massive population explosion.

Easy to fix that. Nobody is.

by ChrisOfNoFame | 21st Dec 23, 1:39pm 1703119195

"Rates were too low for a decade ...blah, blah, blah"

Here we go again. Not going to waste time rewriting why you're wrong. Instead I just ask ....

PROVE IT !!!

by Te Kooti | 21st Dec 23, 5:55pm 1703134524

Prove it? Look at house prices in the last two decades and get back to me.

by GetFeeling | 21st Dec 23, 6:09pm 1703135389

Look at wages in the last two decades and get back to me.

Particularly wages in the group who could afford to buy houses and have parents to help them. (Not the other group that will always be renters & beneficiaries.)

by interesting1234 | 22nd Dec 23, 8:03am 1703185409

around 5 years ago it was possible to buy a 3bdrm in Wellington suburbs which needed some work but not a full do-up. Currently still sitting around 800k-ish for the same areas and quality of housing (likely early-mid 1900's no wall insulation and needs maintenance). Wages or not, that isn't rational or reasonable, or in the better interest of everyone. Only to those already owning property does it benefit.

by KH | 21st Dec 23, 7:58pm 1703141934

I'm with Te Kooti.

by WellingtonInvestor | 21st Dec 23, 5:21pm 1703132492

The problem is that higher rates don't support the current high NZ house prices, without significant wage growth. The problem is that the government allowed house prices to get out of control between 2019-2022, and when the emergency low rates were introduced. Some people way overpaid for their house. They will be praying for interest rates to drop, so their repayments drop and their house value goes back up to that sort of level again. But doing that puts younger people into huge debt, and very vulnerable when interest rates rise.

by Nzdan | 21st Dec 23, 5:36pm 1703133406

Would assume that higher interest rates = higher inflation = wages gradually go up with it (faster than in a low interest rate environment).

So either interest rates go down or their wages go up to compensate. It's that grey period between the two, when their interest rates go up quicker than wage inflation can compensate for, that becomes the issue.

by OldSkoolEconomics | 22nd Dec 23, 11:00am 1703196039

Spot on. the RBNZ (and govt) response to the pandemic further inflated the existing residential property price bubble.

But ultimately it was human greed and selfishness in borrowing at those rates (in the belief investing in housing at the peak would make a quick buck) that has led some people to get into serious debt that they will struggle to service as the bust cycle plays out ovet the next few years.

The economic cycle will continue its ups and downs and as people experience them they will get smarter.... the interesting change in the next decade or so will be at what point the usa starts to decline as its debt balloons and its society fails.. and who or what replaces it as the new leader of the world.

Nz and the rest of the west will also experience a massive decline unless we people are willing to accept a huge shift in our standard of living.

by Rumpole | 22nd Dec 23, 12:47pm 1703202453

Remind me who was in Govt and who was the RBNZ Governor.

by Hahashishi | 23rd Dec 23, 7:46am 1703270809

Stop scapegoating rates. What if we had a rigid and hefty capital gains tax and low rates? Would we have the same house prices? No we wouldn't. We can restrict property value growth sentiment with low rates. Look at what labour did. Did that cool investor sentiment? Yes.

Seems painfully obvious but it's too far from the status quo for the establishment to fathom it seems. Or too many a feather shall be ruffled.

by GetFeeling | 23rd Dec 23, 2:39pm 1703295563

Well said.

by ChrisOfNoFame | 21st Dec 23, 1:37pm 1703119033

"created over 1 November – 4 December 2023."

So front line staff had a better (collective) picture of the economy than their bank economists?

Who'd have thought, ay?

(discl: designed a CRM widget to capture information like this for an overseas bank to reduce prediction lag)

by J.C. | 21st Dec 23, 4:57pm 1703131068

So front line staff had a better (collective) picture of the economy than their bank economists?

I've talked to bank foot soldiers and senior management about their business; specifically about their role as financial intermediaries. 7 times out of 10, their understanding of their own business and how it all integrates in terms of the monetary paradigm and the wider economy is woeful. I find it somewhat disturbing that they don't understand many things. Like visiting an automotive specialist who doesn't really understand how an engine works.

3 times out of 10, the understanding feels closer to the mark - the whole fractional reserve thing. Nevertheless, when I suggest banks create deposits out of thin air when a loan is issued, I get the wide-eye stares and looks of disbelief.

by KH | 21st Dec 23, 8:01pm 1703142108

Look of disbelief from me. OO.

by MikeM | 21st Dec 23, 4:08pm 1703128121

"Cost inflation is evident in interest rates, wages and rents."

Yes, and we've even seen it in the official data with businesses forgoing profits (corporate tax take down) to pay higher wages (PAYE tax take up).

by J.C. | 21st Dec 23, 4:40pm 1703130045

Many retailers are focused on destocking and cutting costs (including labour and investment) in the face of weak demand, particularly for premium products with customers trading down.

This wonderfully describes a wealth effect in terminal decline.

by interesting1234 | 22nd Dec 23, 8:05am 1703185540

Funny isn't it? Humans: no mater how intelligent we have evolved to become, we are still creatures in many ways slaves to our emotions.

by Squishy | 21st Dec 23, 6:58pm 1703138302

In high interest periods it's only going to be people or companies that are drowning in debt who have to contact their bank and beg for leniency though. Similarly in low interest periods the people contacting the bank will usually be looking to load up on debt.

Bank staff aren't a great gauge on the wider economy because the industry is procyclical.

by KH | 21st Dec 23, 8:54pm 1703145274

I like anecdotal and I do like data.

Data can be technically correct, but often is the wrong set, especially when presented by somebody with an agenda.

eg. Banks say they close branches as most money now flows about electronically. Correct about money flow.

But they don't mention big / vast queues in the remaining branches. Now on rare visits to a branch it's because it's something complicated, each interaction takes 15 minutes. And there are five people in the queue.

by wingman | 22nd Dec 23, 5:14pm 1703218497

Hardly surprising after a 6 year battering by Labour, who were hell bent on sacrificing the NZ economy which relies on farming and tourism on the altar of 'global warming'.

by Hahashishi | 23rd Dec 23, 7:41am 1703270517

People put too much weight on our rates. What about overseas lending rates?

What if we could only own one house?.Would houses cost the same?

What if our supply chain wasn't rigged?.Hi, Fletcher's.

When Labour took away tax deductions on interest did that have an affect? Yes.

Decrease earnings, decrease cost of asset. Any change that decreases earnings decreases value. I'm sure we could come up with a long list of things that would do that. Banks want everyone to think it's rates because they make more money when rates are low.

Long story short... Is never one thing. We could have 2% rates and a sensible property market. I don't see how that is not perceived as a potential reality. We netto match the lending power of overseas rates whilst limiting the purchasing power via other restrictions.

Seems obvious