Weekly Economic Update - 12 March 2021

Weekly Economic Indicators 12 March 2021#

Fonterra raises farmgate payout#

Fonterra raised their 2020/21 forecast Farmgate Milk Price range by 40 cents to $7.30-$7.90 per kg of Milk Solids as consistent strong demand, particularly from China, has driven up prices. This is the highest forecast payout since 2014.

NZ Activity Indicator shows modest growth#

The New Zealand Activity Index (NZAC) indicates modest activity growth in February (+0.5% compared to February last year). Several indicators fell below last February's values – including card spending, grid demand, and online job ads. However, traffic flows and manufacturing activity are still growing.

Business confidence levels off…#

The preliminary March read of the ANZ Business Outlook Survey reported a fall in headline business confidence by 7 points while the own activity outlook fell by 4 points (Figure 1). Employment intentions and capacity utilisation were stronger, and cost and inflation pressures continued to rise. A net 74% of respondents expect higher costs ahead and a net 49% expect to raise their prices.

Figure 1: ANZ Business Outlook

Figure 1: ANZ Business Outlook

Source: ANZ

…and household spending dipped#

Electronic card spending fell by 3.2% between January and February as a return to higher alert levels between 14-22 February restricted activity, with spending lower across all store types.

Building activity eases…#

The volume of total building construction activity eased 1.5% in the December quarter, following a 33.5% rebound in the September 2020 quarter, to be down 0.6% from a year ago. The fall in the volume of construction activity was driven by a 4.9% quarterly fall in non-residential construction, while residential construction rose by 0.7%. Growth in residential investment is expected to support total investment growth over the year ahead, with strong housing market activity and consents over the past year setting up a strong pipeline of activity.

…while house prices continue to rise#

House prices continued to rise in February, with the REINZ House Price Index up 3.7% from January, resulting in a 21.5% increase in house prices for the year to February 2021. This is the first time annual house price growth has exceeded 20% since 2004.

Monthly sales rebounded in February after recording a 28% fall in January to be up 14.6% on the same time last year, the largest number of sales in a February month in 14 years. Demand remains high, with low interest rates providing support, and the median number of days to sell in February fell to 30, matching the historical low recorded in 2004.

Manufacturing continues to recover…#

Manufacturing sales volumes rose further in the December quarter, up 0.5%, following the 17.2% rebound in the September quarter. Sales volumes are slightly above levels seen before COVID-19 hit, up 2.0% on December 2019.

…and wholesale sales were also up on last year#

Wholesale trade sales volumes fell 1.7% in the December quarter, following a rise of 17.3% in the September quarter, to remain 2.7% higher than the same time last year. Sales fell most in the grocery, liquor and tobacco products industry, down 3.8% reflecting a change in the timing of Kiwifruit exports.

Overall the partial indicators for the December quarter indicate that much of the strength in the September quarter GDP data has been maintained. We anticipate a further smaller expansion occurred in the December quarter, although a high degree of uncertainty remains.

US unemployment edges down…#

The United States unemployment rate fell by 0.1 percentage points in February to reach 6.1% (Figure 2). The broader rate of unemployment that captures discouraged and underemployed workers (those who have left the labour force or want to work more hours), was unchanged from January at 11.1%. Total employment rose by 379,000 from January, driven by a 355,000 gain in leisure and hospitality. The rise leaves employment down 9.5 million compared to February 2020. Strong employment growth is expected to continue this year, with a $1.9 trillion COVID-19 relief package having been signed into law this week.

Figure 2: US employment and unemployment rate

Figure 2: US employment and unemployment rate

Source: Haver

…and Australia business confidence rises#

The National Australia Bank (NAB) Monthly Business Survey showed businesses growing more optimistic in February, with the confidence index rising to its highest level since 2010 (Figure 3). Only the retail industry recorded a fall. Business conditions were at their strongest since 2018, with employment and profitability both increasing from January. Capacity utilisation indicators recovered to above pre-pandemic levels for the first time.

Figure 3: NAB Monthly Business Survey

Figure 3: NAB Monthly Business Survey

Source: Haver

US Inflation remains subdued...#

Annual consumer price inflation in the United States rose to 1.7% in February as prices rose 0.4% in the month. This was mostly driven by higher energy costs, however, and annual core inflation fell slightly to 1.3%. In China, annual inflation remained in negative territory at -0.2%, up slightly from -0.3% in January. Core inflation was somewhat stronger at 0.0% annual growth.

...as China reduces growth targets...#

The National People's Congress announced a target for China's 2021 annual GDP growth of "above 6%", and a pledge to keep the unemployment rate below 5.5%. Both targets are likely to be met without additional stimulus, with unemployment already below target and GDP growth rates in 2021 being supported by base effects from the COVID-19 slowdown in 2020. A smaller budget deficit target points to a tightening of fiscal spending this year, and bond issuance will also be reduced. This withdrawal of policy support will likely result in a slowdown in economic momentum this year, following the stimulus-driven rebound in 2020.

…and the ECB provides additional support#

The European Central Bank pledged to provide greater support to the economy over the next quarter by significantly increasing purchases under the Pandemic Emergency Purchase Programme, noting the 'undesirable' recent lift in bond yields. The size of the programme remains unchanged, meaning the extra purchases represent a shift in timing rather than an increase in total stimulus.

OECD notes improved outlook#

The OECD noted improved global prospects in their Interim Economic Outlook report, supported by the rollout of COVID-19 vaccines and additional fiscal stimulus. Their forecast for 2021 global GDP growth was revised up to be 5.6%, up from 4.2% projected in December. Growth in the United States saw a particularly large upgrade and is now expected to be double the rate projected in December, at 6.5% in 2021. The uneven pace of vaccine rollouts worldwide was noted as a concern, given the key role this will play in the recovery.

High-Frequency Indicators (Domestic)#

Traffic Movement#

Traffic Movement

Source: Waka Kotahi NZ Transport Agency

Freight Movement#

Freight Movement

Source: Waka Kotahi NZ Transport Agency

Spending by Region#

Spending by Region

Source: Marketview data via MBIE

Spending by Industry#

Spending by Industry

Source: Marketview data via MBIE

Jobseeker (JS) and Income Support Recipients#

Jobseeker (JS) and Income Support Recipients

Source: MSD

People Movements at Selected Locations#

People Movements at Selected Locations

Source: Google

High-Frequency Indicators (Global)#

Trade Weighted Index#

Trade Weighted Index (17 Country)

Source: RBNZ

Volatility Index#

Volatility Index

Source: Haver

US Activity and Equities#

US Activity and Equities

Sources: Federal Reserve Bank of New York, Haver

Labour Markets#

Labour Markets

Source: Haver

COVID-19 Cases#

COVID-19 Cases

Sources: World Health Organisation/Haver

World Commodity Prices#

World Commodity Prices

Source: ASB

Tables#

Data in Italic font are provisional.
... Not available.

(1) Seasonally adjusted
(2) Ordinary time, all sectors
(3) Westpac McDermott Miller
(4) Quarterly Survey of Business Opinion
(5) Reserve Bank (11am)
(6) Daily close

(1) Seasonally adjusted
(2) Case-Shiller Home Price Index 20 city
(3) The Conference Board Consumer Confidence Index
(4) Cabinet Office Japan
(5) European Commission
(6) Nationwide House Price Index
(7) Australian Bureau of Statistics
(8) Melbourne/Westpac Consumer Sentiment Index