An interesting release coming out of New Zealand recently on trade numbers for May - interesting because on the surface, it seems to fall in line with many of the popular macro views but how digging through the numbers produces some interesting data points. The high level message is pretty simple: imports got crushed and exports saw a decent rise, resulting in the largest trade balance (as % of exports) in 16 years.
New Zealand's Trade Numbers for May
Jul 1 2009, 04:18 | about: AUNZ
The big drop has primarily been attributed to petroleum, petroleum products and passenger cars. In NZD terms, imports fell by $809M from $3.1B (a 20.7% drop YoY) - the largest YoY drop since Feb 1993.
Most of the drop can be attributed to intermediate goods with capital goods falling on a smaller base and consumption goods being largely flat. Most interestingly, passenger cars were down about 52% YoY. This is a huge signal on the mood of the NZ consumer especially as the decrease has been relatively even on the 3000cc over/under (i.e. economy cars and luxury cars are both seeing decreased demand).
At some point, the derivative differential between capital goods and intermediate goods is going to need to be resolved; the relationship would seem to be banded at a long-term equilibrium relationship and the current divergence would need to be corrected in the next 6 months - 1 year.
The one mystery has to be NZD demand for petroleum and petroleum products. For example despite the price increases we've been seeing in spot and near crude, total crude oil imports have actually gone down 32.3%. Even after having a rough adjustment for currency movements, we're still left with the implied elasticity of NZD oil demand being unlike any other major markets. The most feasible answer seems to be an oldie but a goodie; the decoupling of the academic from the practical realities. I.e. crude oil shipments are irregular enough to screw with the numbers (Edit: this is mentioned by the NZ stats bureau).
Exports were up $218M YoY to $4.0B. The big story here is Chinese demand with exports there accounting for 80% of the increase (i.e. ~$176M). The components are mostly agricultural commodities with milk products and timber/wood products accounting for $186M increase alone. The picture isn't particularly complicated but it is interesting to note the drop in exports in crude and aluminium.
The trend is leaving some room for interpretation here. We have to think with the exports drivers being weak (especially in light of some troubling stuff coming out of China, hat tip Macro Man) and further weakness in imports due to the "more darkness before it turns light" argument, it's very possible for the surplus to remain in its general form over the medium to long term.
Of course this a relatively weak conclusion due to the high level of uncertainty around certain line items. For example 25% of the export increase can be attributed solely to milk powder exports to China. Is more higher quality milk powder a structural shift in the political/pediatric dialogue in Beijing? Or can it be bundled as just another Chinese commodity story with demand likely to evaporate in the next few months?
Even the crude story can be snatched by the bulls or the bears depending on if you want to believe in the practical difficulties of shipping crude oil to NZ or if you envision some complex demand function for crude driven by a highly unusual elasticity ratio - or somewhere in between those two views.
Bottom line, despite what some of the economists are saying there's no strong reason to fade the NZD on CA fundamentals.