Tracking the economy

Compiled by Mark Walton

Friday 6th September 2002

Recently released data indicates continued strength in the housing market. Statistics New Zealand figures show the value of residential building work increased 2.5% during the June 2002 quarter and was 17% higher than in the June 2001 quarter. This latest result is the continuation of an increasing trend in residential building that began in March 2001.

Persistently high levels of inward migration have fuelled house prices, creating a gap between them and residential construction costs. As noted in last week's column, house prices have increased 6.7% in the year to June 2002, while housing construction costs increased 2.8%. Investment theory suggests the level of residential building will continue to be above its long-term equilibrium as long as this price differential exists.

In contrast to the growth seen in the housing market, non-residential building has been relatively subdued over the previous 12 months. Total non-residential building fell 2.1% during the June 2002 quarter and was 0.8% lower than in the June 2001 quarter.

Wholesale trade activity steady

The Wholesale Trade Survey statistics for the June 2002 quarter were also released recently. The survey showed wholesalers' sales increased 0.5% during the quarter, following an increase of 1% in the March 2002 quarter. The petroleum and related products group made the largest contribution to the June quarter's overall result, increasing $118 million or 11.8%. This increase was partly attributable to increases in oil prices over the period. Motor vehicle wholesaling also increased significantly during the quarter. Overall, nine of the 13 wholesale storetypes recorded increases in sales during the June quarter.

All but offsetting these increases were falls in the primary product foods and food and grocery products wholesaling storetypes. The primary product food storetype made the largest negative contribution to the June quarter result, falling $269 million or 8.7%.

The trend in sales for the primary product storetype has now declined for three consecutive quarters, having previously increased for nine consecutive quarters. This trend is largely in line with that of agricultural commodity prices, particularly those of meat and dairy products. Statistics New Zealand's producers price index shows the output or sales price of meat and meat products fell 4% during the June quarter and that it is now 5.6% lower than its September 2001 peak. Similarly, dairy prices have eased considerably, having fallen 9.1% between June 2001 and March 2002

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