Tuesday, 21 May 2013

Data you should notice

One of the odd things about media coverage of economic developments is that some releases get lots of coverage, while others go largely unreported.

As a financial journalist in a previous life, I can understand how this happens: you develop some contacts at a particular institution - at one point when I lived in Tokyo I was the world expert on the Japanese syndicated loan market (I appreciate this is not anyone's life ambition) because I knew who to ask about the latest deals - so you invest some effort into understanding the data that originators produce, and you get comfortable with them. If they seem to have a good feel for what's going in their neck of the woods, you tend to stick with them, and you don't pay much mind to alternative data sources.

All that said, it's a little bit odd that the Reserve Bank's surveys of private sector expectations get such little coverage. It's not the fault of the comms folk at the RB: they're diligent, and personable. But for whatever reason, the RB's survey doesn't get much airtime.

And that's a pity. The survey is, to be sure, mostly aimed at things the Reserve Bank, more than anyone else, would most like to know, and it's not tailored for mass consumption. From the RB's perspective, they are especially interested in inflation expectations, and in people's perception of whether monetary policy is a stimulus or a brake on the economy. On the latter point, you might think that there couldn't be a great deal of debate on the stance of policy - either the Reserve Bank is aiming to boost activity, or it's aiming to slow things down, and by and large the Bank tells you where it is at - but at the end of the day, what some policy authority intends may not match up at all well with what its target constituency is actually experiencing. And as we'll see in a moment, its target constituency has mixed views.

So here (given that I'd bet a dollar or two the mainstream media haven't covered it) is what the latest Reserve Bank survey is telling us.

You can see it for yourself here, but before we go there I should disclose upfront that I'm one of the respondents to this survey. In passing, this might be a bit presumptuous, and the Reserve Bank might have its own reasons for the people it asks, but the number of people the Bank consults is getting a bit on the thin side. In this latest survey. they sent out 117 questionnaires, and got 71 responses back. That's not awful, but it's not fully covering the waterfront, either. If you think your view is as good as anyone else's, why don't you have a word with the RB about participating? Get in touch with Mike Hannah, their PR guy. Tell him I sent you. When he's finished laughing, he might still add you to the survey panel.

Where was I? Oh yes - the latest survey results. Four things.

One, we don't have a generalised inflation problem. Whether you look at the immediate inflation outlook, or 1 or 2 years ahead, the answer comes out the same. People expect inflation to fall, and to be well within the RB's 1-3% inflation target.

Two, and despite the benign inflation outlook, people expect monetary policy to become a bit tighter. That could be for lots of reasons. Many people might reckon (rightly) that we needed lower interest rates in the wake of the Canterbury earthquakes - the RB was quite explicit at the time about providing support to the economy, as an insurance policy, to help us through the impact - but equally, now that it's obvious that the economy is on an upswing, that insurance policy is no longer needed. It's possible, too, that respondents to the survey have some sympathy with the Bank's concerns about frothy housing markets.

Three, people have differing views about the current orientation of monetary policy. Before I tell you what the survey says, what's your own perception of the stance of monetary policy - easy? middle of the road?  tough? If you found that an easy question to answer, that's fine, but you may be missing something:  the respondents to the latest survey didn't find it an easy question to answer at all. They were all over the place: just over a quarter of them thought monetary policy was tight, 15% thought it was neutral, 60% (give or take) thought it was easy.

What's going on here? We have one of the most transparent monetary policy regimes in the world. The Bank goes to great lengths to tell us, upfront (rather than well after the event), what it's doing, and why. How can there be this range of views about its stance?

The short answer is that respondents are actually weighing up both interest rates (which are very low) and the exchange rate (which is very high). How that combination impacts you is an entirely empirical matter, and if you're an exporter (for example) you could well, and honestly, report that, taken in the round, monetary conditions are making life difficult for you. All the more reason, by the way, for paying more attention to indices of monetary policy that include both interest rates and exchange rates, and arguably other measures too (for example, the availability of credit,and  the feasibility of raising equity on the share market). Have a look at my April 23 post about the Monetary Conditions Index, which makes the same sort of points. On that overall monetary conditions basis, by the way, you'd have said that monetary policy was relatively restrictive, despite low interest rates.

Four, and despite incessant hand-wringing reports in the media to the contrary, the survey respondents believe the economy's in a growth phase. There wasn't a single respondent who expected a fall in GDP in either the March or June quarters; no respondent expected a fall in GDP in either the year to March '14 or the year to March '15; and the consensus view was that GDP would grow by 2.5% in the year to next March, and by 2.8% in the year to March '15.

Expectations can of course prove off the mark, but wherever you look - and the latest BNZ/Business New Zealand performance indices for manufacturing and services, published in the last few days, are as good a place to look as any - the New Zealand economy is on an upswing.

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