ANALYSIS: It doesn’t look like this winter is going to be a particularly good one for many people and for the economy overall. My latest monthly Spending Plans Survey has this week recorded a deterioration in the proportion of the 555 respondents expecting to buy more stuff in the next 3-6 months to a net 36% negative.
That is, 36% more of the respondents plan to cut their spending than plan to increase it. This is a deterioration from -30% at the start of April and -13% in December. The average reading for the four years I’ve been running this survey is -4% so looking at these latest numbers one would have to say prospects for the retail sector are fairly bad.
In fact, a net 16% of people plan spending less on motor vehicles, a net 44% plan cutting spending on eating out, and a net 27% plan buying fewer household appliances and items of furniture. The only two areas where we plan spending more are groceries – logically because they cost more – and international travel.
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A net 4% of us still plan going overseas despite feeling very depressed about the economy and our jobs. Such is what happens after a pandemic when we could not travel offshore for a couple of years. We are still engaging in revenge travel.
Regarding jobs I can get some good insight from the monthly survey of real estate agents which I run with NZHL. I ask agents a variety of questions including what they are seeing buyers express greatest concerns about. On average, since early 2020, 16% of agents have said that buyers are worried about their income.
In January that reading was 14%. Now it is a record 50%. This neatly and clearly shows us the key thing which has changed in our economy since the start of the year – employment confidence and job security. People are fearful of losing their jobs or not securing a new one. It will be interesting to see in the coming year how this affects employee demands to work from home and tolerance of employer requests to get back in the office.
The new high level of concern about job loss helps explain why a net 37% of agents have just reported in the survey that they are seeing reduced numbers of people attending open homes. In January a net 57% said they were seeing more people. The turnaround is quite stark, and it is perhaps no surprise that FOMO – fear of missing out – is now almost completely gone.
Independent economist Tony Alexander: "People are fearful of losing their jobs or not securing a new one." Photo / Fiona Goodall
Only 3% of agents now say that they can see buyers expressing concern about missing out on a property. This proportion in January was 23% and in September 40%. In contrast the proportion of agents saying buyers are worried about a lack of listings has fallen to a record low of 4% from 25% in January and 55% in September. Buyers have plenty of properties to choose from.
The upturn in New Zealand’s residential real estate market which occurred in the middle of last year plateaued late in the year and now things are going slightly in reverse. When will they improve again? Not until interest rates fall. When might mortgage rates fall by enough (1%) to cause renewed upward movement?
I’d say by the end of the March quarter next year. When that happens focus is likely to turn to the rapid decline in house building despite strong population growth and rules less negatively impacting investors.
But between now and then things are going to look very weak across housing and many other sectors in the economy. As the now common mantra in the business sector goes – “survive to ‘25”.
- Tony Alexander is an independent economics commentator. Additional commentary from him can be found at www.tonyalexander.nz
