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.
48 Comments
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.
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.
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.
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.
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.
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.
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....
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.
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.
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.
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.
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.
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.
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.
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.)
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.
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.
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.
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.
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.
"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)
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.
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.
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.
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
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