Dairy sector manufacturing (but not exports) covers for considerable fall in construction activity as GDP grows 0.5% in March qtr vs RBNZ pick for 0.9% growth

Dairy sector manufacturing (but not exports) covers for considerable fall in construction activity as GDP grows 0.5% in March qtr vs RBNZ pick for 0.9% growth

By Alex Tarrant

So long construction boom, and thanks for all the milk.

A considerable drop in construction activity looked set to drag the economy’s growth rate to the bottom end of expectations for the first three months of 2017.

But growth was saved by the dairy sector. At least, by manufacturing more milk powder; we’re still waiting to send a load of it overseas. Retail trade also helped, as households boosted spending again, to the greatest rate in over a decade.

Gross Domestic Product (GDP – a broad term used to try and fathom the size of our economy) grew 0.5% during the March quarter, up from 0.4% in the final three months of 2016.

The Reserve Bank of New Zealand, though, had been expecting 0.9% growth in March. Retail economist expectations had ranged from 0.1% to 0.8%.

“Much lower building activity combined with mixed results for the service sector took the shine off higher dairy production, Stats NZ national accounts senior manager Gary Dunnet said. The result was “moderate overall GDP growth.”

The figures released by Stats NZ Thursday showed annual growth in the year to March of 3.0%.

GDP per capita in the March quarter fell by 0.1%, following a 0.2% fall in the December quarter. Annually, GDP per capita rose 0.9% in the year to March 2017.

What construction boom?

Construction activity “fell considerably,” during the quarter, Stats NZ said. With overall activity down 2.1%, both residential and non-residential activity fell.

It might just be a burp. Construction sector growth was 1.4% in the December quarter, and we’re still at a 9.3% annual growth rate due to strong increases through 2016.

Or it might mean we’re at as good as it gets until more capacity comes on stream. Prime Minister Bill English’s latest building-site anecdote this week was that some council requests for interest put out for construction work were not being met with any tenders at all as the industry was maxed out.

Thank God for dairy, then. Still got to export it though

On the positive side of the ledger, activity in the agriculture sector rose 4.3% over the quarter, driven by higher milk production. This flowed through to higher dairy product manufacturing, which contributed to the overall rise in food, beverage, and tobacco product manufacturing, Stats NZ said.

One caution: Dairy exports fell 11% during the quarter, resulting in a build-up of inventory in warehouses around the country. We’ve still got to export some of that increased production.

Net exports overall during the quarter were down, as exports of goods & services fell 0.4% and imports rose 1.3%.

As shown by Wednesday’s current account figures, the signs are that New Zealand households have picked up their purchases of imported goods.

Household spending bounced back this quarter, up 1.3%, reflecting strong growth in retail trade, Stats NZ said. This rise contributed to an annual growth rate of 4.7%, the largest increase in household spending in over a decade.

Activity in the services industries was mixed at positive 0.4% growth, Stats NZ said. The main drivers of growth were retail trade and accommodation. In contrast, transport, postal, and warehousing; and rental hiring and real-estate services were down.

Ending on a positive note: Overall investment was up despite all that lower building activity and less investment in transport equipment.

“Investment in plant, machinery and equipment has been the strongest in almost seven years, reflecting higher domestic production and greater imports of machinery,” Stats NZ said.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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Whats the per capita figure?

Well stats nz population growth estimate for 2017 is 1.7-2.1. If we take the mid point, that's about 0.5% for the quarter.

So zero growth on a per capita basis.

Now are these figures inflation adjusted? If not we are in recession right now.

What I find concerning is that the property market slowed in the March quarter. Seriously an economy that is only propped up by property sales is not functioning properly.

I've added that in now, smalltown,

GDP per capita in the March quarter fell by 0.1%, following a 0.2% fall in the December quarter. Annually, GDP per capita rose 0.9% in the year to March 2017.



so a fall of .3 for the 1/2 year not a good sign for winter as well, hope it picks up during the end of the year

Thanks Alex,

two quarters showing a fall - does that mean we are in a Clayton's recession based on per capita figures??

Considering household debt to GDP, i'd be very wary about cheering on consume spending.

Also, is China purchasing less dairy? And is this symptomatic of their slowdown and portent of the future?

Given the huge amount of owner occupier debt created in the March quarter where is all the GDP growth? Has it all be squandered on importing consumer rubbish?

It is being squandered on over priced something, owner occupiers now make up an increasing proportion of the property market and Auckland land costs are very high.

I think I'll have to dig around so I can figure out where all the money is flowing to. There should be something productive going on, rather than next to nothing.

My guess is that investors have left to bottom end of the property market, but the price has not fallen much, so that market is being sustained at current high levels by something. The only someone left (because we know developers are not purchasing the land to build on) is owner/occupier sector who are now buying more houses at the high prices.

There is some decent amount of money flowing into commercial building in the regions as some companies have started to exit Auckland and are now re-locating head offices back into the regions where land costs are lower, but it isn't happening on a large scale yet. I only offer this as an observer on the ground in my local city right now. It is still low key but changes are definately starting to happen. Also there is still alot of home renovations going on in the smaller cities which keep the tradies busy. Not all of these home renovators are jacked up to their eyeballs in debt, unlike the majority of their big city counterparts, so renovating is still a popular past-time and is still considered as an ongoing weekend project to raise their standard of living, rather than looking at it from an investor's point of view.

Being spent on imported cars

Births over deaths in NZ averages just over 30K, add net gain from immigration of 70K. So population growth of 100K. Population approximately 4.7million. So population growth is just over 2.1% (the statistics NZ estimate of 1.7-2.1% will have a lower net immigration number added to natural increase) Or just over 0.5% population growth, adjusted for GDP growth of 0.5%, and we have slightly negative GDP per capita. Note the GDP figure is already adjusted for inflation.

Concern is the current account blow out, and 4%+ increase in retail spending, essentially the negative per capita GDP number would be worse, except for an element of borrow and spend form domestic consumers.

And don't forget the contribution of Auckland ratepayers who are on track to spend $billions providing entirely new greenfield infrastructure to such diverse places as Wellsford, Warkworth, Pukekohe, Clarks Beach and Kumeu. No expense has been spared by Auckland Council in solving the housing crisis in every part of the Auckland region - apart from Auckland City.

Entire areas of low cost development land with great existing infrastructure adjacent to Auckland City are totally forbidden to ever be developed. The commitment of Auckland ratepayers to ensure spending is maximised, debt is increased and results are minimised is a pleasure to behold as they spread their wealth far and wide.

Can anyone reconcile the GDPE implicit price deflator's rise from 1123 as of Mar '16 to 1168 as of Mar '17, apparently a ~4.00% annual increase? Or am I just confused?

Higher imports seems to be consistent with high vehicle sales.

Construction ? Milk ? No my friends the great ponzi unwinds as interest rates rise which is exactly what the FED just did to 1.25% .
Hold off any property purchases young people
Just sit back and save. Also do not invest in the sharemarkets at their peak in my humble old aged opinion.

The question is which comes first the chicken or the egg? By this I mean the Fed's rise will do what first off? If the economy is really weak then assuming no black / grey swans jump out the economy will falter and slip back into a recession then property will have a bad day but that will take time to happen. The thing is will something go badly astray before that? I'd guess that as the faltering gathers steam we'll see the speculator / parasite class try and exit their positions which will snowball things. The problem for ppl saving is if such an event occurs (and I think it will) is the logical snowball progression takes us to an OBR event that see's depositors lose a % of their savings.

Sharemarkets? I mostly exited 8 years ago, though one thing left I have running on the american market just made a 25% gain this year alone. If I'd doubled down 8 years ago I'd be substantially up, and if Trump allows a tax free return off offshore $s that could get interesting. Ive got to wonder if I made the right decision, cant know that til the fat lady sings as they say. ie its going to blow the only Q is how much longer does the game of musical chairs continue?


I have looked at a good many of your posts and often agree with you. I was however,very surprised to learn that you(mostly) pulled out of equities in 2009. I thought that was a good time to buy. I have been investing in NZ shares since I retired here in 2003 and kept increasing my exposure right through to last year. I only invest for dividend income and would see a significant correction as another buying opportunity. As I am sure you know,dividends fell by much less than capital values during the GFC. Of course,If we have some form of financial armageddon,then all bets are off.
OBR does concern me and I attempt to mitigate risk by having deposits with several banks and some government bonds.

The RBNZ wont raise interest rates if it looks like it would cause what you are implying.... I think you better get off the wacky backy its making you paranoid!

Northern Lights,

"Also do not invest in the sharemarkets at their peak". Given your certainty that they(all of them?) are at a peak,I assume that you are busy shorting them and will make a fortune doing so.
My advice to younger people is to invest in the stockmarket on a regular basis,so over time,benefiting from dollar/cost averaging.For most,this can easily be done through Kiwisaver. Now,i am also in the older age bracket and i certainly agree that I would not be putting a significant capital sum into the market right now.

Readymix concrete is a very worthwhile secondary indicator of construction growth. Interest.co includes it in its tool section.There is often a rebound in the June quarter, but looking at consents and the end of Christchurch, questions of a true shortage of skilled labour need to be questioned. Companies such as Fletchers can simply ramp up prices on a perceived shortage of anything. If your not pouring concrete your not building unless mud and straw have taken over.

Steven enjoyed reading your opinion
Yes you are right I left out the very real danger of savings getting a haircut & sadly I believe there wasn't a % written into the legislation so the % haircut could be anything.
The young are saving instead of investing in the sharemarket as a rule these days although there are exceptions.
I hear the markets in the USA have already factored in the Trump tax cuts for business and lately I heard that if they didn't happen there would be a correction although as you rightly feel any idea on timing is anyone's guess.
The fact is the paradigm the world economy is in is fuelled by massive debt so if the FED did up the rates too far that could prove the catalyst for GFC2
A lot of money is invested shorting the market and it keeps being shorted because of these extreme high debt levels across the world
I wouldn't sweat it being out of the sharemarket either The really smart funds are holding a pile of cash and only 50% invested in today's market peak anyway
These funds will buy on the downs so they'll still make a profit
As for me I make mistakes but still manage to survive and not work I guess I appreciate I can't always win

Does the National Party still have bragging rights on running a successful economy? With a 2.1% annual population growth, we posted a 1.8% growth in economic activity. Bill English and Steven Joyce should be laughed off the stage if they ever talk about strong GDP or economy again.

I wouldn't worry too much about the Nats. Winston Peters is polling higher than ever at about 9.2% i believe, so they won't get into parliament without him! And everyone knows how Winston works. He will hold the Nats over a barrel and negotiate until they accept his policies or they bleed out.

TainuiBabe should be fun watching Bill English & co bent over barrels again !
Amazing how this party National that claim they are the fiscally responsible ones have presided over the biggest combined housing & immigration ponzi in NZs entire history !
I hope Winston keeps living He is one of the few politicians that delivered on populism with free doctors visits for under 18s etc GO WINSTON!
NZs finest politician who never cared enough to be PM because it would be too much work !