KEY POINTS:
How bad is the economy right now? Among the regular surveys that give a reasonably reliable measure, two matter more than most. One monitors inflation, the other GDP, which is a guide to the expansion or contraction of economic activity. Inflation at the end of June was reported yesterday and it is high.
The consumer price index has risen 4 per cent in a year, higher than most estimates of the impact of recent fuel and food price rises, and well above the Reserve Bank's permitted range. It leaves the bank less likely to give the economy a boost by relaxing interest rates earlier than it has previously indicated.
But the bank also needs to know what has happened to GDP. Unfortunately that figure arrives much later, and is often revised later still. The latest tentative reading, for the period to the end of March, was reported near the end of June. It found activity had stopped increasing for the first time in a decade. If the contraction during the three months to March continued to the end of June, the economy has been officially in recession. But we will not know until September, when we might find solace in the fact the data are so delayed.
There might then be reason to hope the slump is history, but as yet there is no sign of a lift. It is more the news of official recession will cast a pall in September that will continue until a better GDP reading arrives. The survey lag alone could make this a depressing year.
In the absence of up-to-date measures of activity overall we are left with sectoral surveys such as the retail spending data issued monthly by Statistics New Zealand. Again it is slow delivery. Sales figures for May arrived this week. They show a serious fall for major consumer items such as motor vehicles, furniture and floor coverings since the previous month. More essential spending, on food and other household supplies, recovered in May from a fall in April but a slight increase over the previous year was less than inflation, meaning consumer spending has dropped in real terms.
Retailers do not need surveys to tell them times are tough. The discount signs in all sorts of stores speak for themselves. But recession does not really hit the community at large until unemployment seems endemic. New Zealand has had full employment, and even a shortage of labour in many sectors, for the best part of a decade. This year the number of jobs has declined by 29,000 in the first three months but few of those who lost work had registered as unemployed. The register rose only to 3.6 per cent, still one of the lowest rates in the developed world.
If employment has continued to contract in the three months to June, as seems likely, the picture may have darkened. Many of those who had not registered as unemployed by March may have done so since, and been joined by those laid off more recently. We will not know until the June quarter job figures arrive early next month.
A visible rise in unemployment would probably put an end to the wage increases that averaged 5.8 per cent in the year to March, outstripping the consumer price index by 2.4 per cent. The latest index shows overall inflation rose 1.6 per cent in the three months to June, leaving wage earners still ahead despite the increases in petrol (26 per cent in the year to June) and food (8.2 per cent).
These are solid, if slow, measures of the economy, as distinct from the various surveys of confidence in which optimism or pessimism can feed on itself. The first half of the year has been hard, and the second half may be no easier. But by the time the figures arrive, the worst will probably be past. It is a statistical mercy.
