'Stonking' rise in non-farm economy as investment and hiring surges

Shamubeel Eaqub, principal economist at the New Zealand Institute of Economic Research
Proof the economic pick up is not just a "white gold" story comes with the latest New Zealand Institute of Economic Research quarterly survey of business opinion.
 
The survey, which covers all the economy apart from farming, covers not only expectations and general mood but also firms' experienced activity over the previous quarter. 
 
These figures are telling. Firms' reported the highest level of domestic trading activity since December 2003; the highest level of investment in plant and machinery since December 1994; and the highest level of profitability since December 2003.
 
Investment intentions for buildings is at an all time high: this is partly the Canterbury reconstruction effort and housing supply catch up in Auckland, but also the large scale earthquake strengthening work going on in Wellington and other large centres, says principal economist Shamubeel Eaqub.
 
"The underlying trend in the economy is very very strong," he says. 
 
"I looked through the numbers and the word that popped into my mind was 'stonking'. Not only is the recovery strengthening, it is broadening also. We are seeing this optimism realise into activity, hiring, investment - and also into costs and pricing intentions."
 
The Reserve Bank will also be watching the fact that both average selling prices and average costs are also rising, although the price inflation effect is not quite as strong as the other indicators: both costs and prices are up the highest they have been since the GST increase in 2010. 
 
"They will be feeling vindicated," Mr Eaqub says about the Reserve Bank's recent moves to tighten interest rates. 
 
By sector, manufacturing is on the up, and not only domestically. Export sales are at the highest for a decade, although domestic sales eased "a touch".
 
The general  story of manufacturing is quite positive, we are seeing good lifts in orders, output and employment. 
 
Services - the largest part of the economy - has been somewhat lagging but is now "in firm expansion mode."
 
The big difference between this recovery and the last two is credit growth. A decade ago, credit growth was running above 10% a year and hit 15% at one point. At present, credit growth is running below 5% - or below the growth in nominal GDP.
 

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