The Dog Days Are Over. The RBNZ’s Rate Cut Has Shifted The Conversation For Households And Businesses.

• Kiwi households and businesses are lifting their heads and relishing the RBNZ’s rate cut – with more cuts to come. We’re hearing and seeing a massive lift in confidence for better days.
• Confidence may be improving but building consents and our housing supply, not so much. To be fair building consents lifted 26.2% over July. But over the year building consents are still running deep in the negative – down 22%.
• Our COTW looks at the monthly filled jobs data. July’s 0.1% decline brings filled jobs 1.1% below the March 2024 peak. It’s the fourth straight monthly decline in filled jobs – the longest stretch since the GFC. Employment is quickly losing its shine.

Here’s our take on current events

It's been just a little over a fortnight since the RBNZ delivered their first cut, and we’re already seeing a huge improvement in sentiment across businesses and households. Confidence and hope for better days is returning. That’s the feedback we’re receiving as we’ve travelled across the country to see a number of our clients. Now, we are also seeing the uptick in the confidence numbers. Last week, ANZ’s latest survey of business confidence rose an impressive 23 points to a decade high of +51 in August. On top of that, firms’ expected own activity jumped 21 points to a seven year high of +37. According to the survey, two thirds of the responses came in prior to the RBNZ’s rate cut. But it seems the RBNZ’s dovish pivot in July had already caused a shift amongst businesses. Because retail rates had already fallen as wholesale rates fell in anticipation of RBNZ rate cuts. The August 25bps cut was just the cherry on top.

Looking beyond the headline confidence numbers, other indicators within the survey also lifted. Expected profitability, investment intentions, and employment intentions all picked up out of negative territory.

Consumers were also feeling the relief of RBNZ rate cuts and decreasing inflation. Consumer confidence lifted 4 points over August to 92.2. And while that still sits below its 10-year average, it is certainly an improvement from the trenching low of 73.8 at the end of 2022.

Looking ahead, confidence should strengthen from here. Though perhaps not in such a big leap as in August. The excitement of the RBNZ first rate cut will settle. Still, with 275bps of cuts to come, we can’t blame businesses and households for feeling a lot better. We’re excited for them.

We simply have a brighter outlook for 2025/26. But grey clouds still hover above 2024. The current environment is still tough, as reflected in firms’ experienced activity which rose just 1 point to -21. And given the strong correlation of firms past activity to GDP, actual better days are probably still a while off. We’re still expecting to see the kiwi economy contract over the June quarter, along with further subdued growth for the remainder of 2024.

The massive lift in confidence, in our view, lowers the chance for any 50bps cuts, as currently priced in the market. Our view is unchanged; we expect to see a steady glidepath down in the cash rate. We forecast another eleven 25bp cuts to 2.5% from the RBNZ into 2026.

Another piece of good news here at home was the uptick in building consents. After falling 17% in June, residential building consents lifted 26% over July. Despite the increase in July, consents are still down 22% over the year. Building consents are down 35% and 27% for Wellington and Auckland respectively. We hate to see it. But we aren’t surprised by the numbers. We desperately need a solution to housing supply. The chronic shortage of supply is the driver behind our housing crisis. Not demand.

Chart of the Week: Ghost of crisis past.

Stats NZ’s monthly employment indicators continue to flash red. Filled jobs – a tax-based measure of employment – declined by 0.1% (seasonally adjusted) in July. It follows June’s downwardly revised 0.3% dip. July marked the fourth consecutive monthly decline in the number of filled jobs – the longest stretch since the Global Financial Crisis. But it’s not just the monthly moves that are bringing back memories of 2008. The speed of the decline is also haunting. During the labour market fallout of the GFC, filled jobs dropped a total of 5% in the span of 19 months. Fast forward to today and filled jobs are already down 1.1% from the March 2024 peak. That is, filled jobs are already over a fifth through the GFC-slide, and it’s only been four months! Employment is quickly losing its shine and will drive further labour market softness from here. We expect the unemployment rate to breach 5% by year-end. Capping downside risk is the fact that the RBNZ has already begun the rate cutting cycle, bringing much needed relief to many businesses and households.

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