Weak data on building activity and manufacturing may have caused a little uncertainty to niggle at the high levels of confidence in the market that the Reserve Bank will lift the official cash rate (OCR) on Thursday.Figures from Statistics New Zealand tod
Weak data on building activity and manufacturing may have caused a little uncertainty to niggle at the high levels of confidence in the market that the Reserve Bank will lift the official cash rate (OCR) on Thursday.
Figures from Statistics New Zealand today show the volume of manufacturing sales fell a seasonally adjusted 2.7 percent in the March quarter, dropping to its lowest point in almost 10 years, mainly due to a fall in meat and dairy sales.
Despite the drop in volume, manufacturing values rose 0.9 percent or $171 million, due to increased prices, particularly for dairy products, Statistics New Zealand (SNZ) said today.
Meanwhile, the seasonally adjusted volume of non-residential building activity fell for a fifth consecutive quarter in the three months to March, dropping to its lowest level in six years.
The non-residential adjusted volume fell 0.8 percent in the March quarter, and was 13.6 percent lower than in the December 2008 quarter.
In contrast, the seasonally adjusted volume of residential building work rose 2 percent, adding to a rise of 7.2 percent in the December quarter.
ASB economist Jane Turner said the drought in Northland during the first part of 2010 had clearly weighed on processing activity, although core manufacturing demand continued to improve as a recovery domestically, and in Australia and China gained traction.
At the same time, factors affecting residential building activity included a subdued property market during the past six months, and finance difficulties for builders due to the collapse of finance companies that provided development finance, she said.
The figures for both construction activity and manufacturing sales were weaker than ASB economists were expecting, and they had revised down their outlook for first quarter gross domestic product, from 0.7 percent to between 0.3 and 0.4 percent.
"However, drought is a known (and temporary) impact, and underlying manufacturing continues to show recovery. We still expect the RBNZ to lift the OCR this Thursday, though this morning's data add a little more uncertainty to the decision."
ASB economists said markets were pricing in just over a 70 percent chance of an increase of 25 basis points in the OCR, and around three in four economists were expecting such a move.
While uncertainty around the fallout from the European sovereign debt crisis had introduced some doubt about the decision, domestic conditions were improving and increasingly pointed to the need for less stimulatory monetary settings.
Goldman Sachs JBWere analyst Philip Borkin said he saw limited monetary policy implications from today's data, as the Reserve Bank would be more interested in forward and timelier gauges of the extent of cyclical recovery, putting aside recent financial market ructions.
