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Weekly economic update

Weekly Economic Update - 13 August 2021

Weekly Economic Update 13 August 2021

Strong growth in card spending continues...

Electronic card spending rose 0.9% in July, to be up 6.0% annually. Retail spending rose 0.6% and non-retail spending was 2.4% higher in the month. Consumables spending rose 0.7%, driven by an increase in food prices. Apparel spending was up 3.6% and spending on fuel rose by 0.9%.

The increase in income support payments from July, strong wage growth, low interest rates, rising house values and a lack of overseas travel options are all likely be supporting spending. We expect spending to remain robust in the near-term.

...and house price growth maintains momentum

Housing market activity continued to show resilience since changes were made to tax and lending rules earlier in the year. Prices rose 1.9% in the month to be up 30.6% from a year ago in July - a fresh record high growth rate (Figure 1). However, the 3-month moving average of monthly house price growth has been tending down since January, suggesting a slowing in the rate of growth in house prices. Demand in the housing market is likely to ease further with interest rates expected to rise over the year ahead, resulting in slower growth in house prices. Banks are expecting the Official Cash Rate (OCR) to rise by 25 basis points at the next review on the 18th of August.

Figure 1: REINZ house price index and sales

Source: REINZ

Sales activity has also been trending down since December 2020 but remains at an elevated level compared to previous years, which is expected to support consumption and investment over the quarters ahead. High sales volumes in recent months have coincided with near-record-low levels of inventory, and with days-to-sell falling to 31 (the lowest for a July month since 2016), reflecting a 'fear of not finding anything' dynamic according to REINZ. Sales activity is expected to ease as mortgage rates rise, pricing some buyers out of the market.

Food and rental prices rise...

Food prices rose 0.5% in July 2021, mainly driven by higher prices for fruit and vegetables, to be up 2.8% compared to July 2020. Rental prices rose 0.3% to be up 3.2% compared to July 2020.

...and inflation expectations remain high

The Reserve Bank's Survey of Expectations for July showed that mean CPI inflation expectations rose to 3.02% (from 1.87% last quarter) in one years' time and 2.27% (from 2.05% last quarter) in two years. Expectations for the OCR have also increased significantly, following the higher-than-expected CPI outturn for the June quarter. Mean OCR expectations rose to 0.4% for one quarter ahead and 1.02% for one year ahead. All survey participants expected to see at least one rate hike in the next twelve months and most expected to see two to five rate hikes over the next year.

Compared to the previous quarter, respondents had higher expectations for house price growth one year ahead, but slightly lower expectations two years ahead. House prices are expected to rise by 6.74% in the next 12 months and 4.15% per annum over the next two years.

Manufacturing activity lifts further

The BNZ-BusinessNZ Performance of Manufacturing Index (PMI) showed that activity in the sector lifted again in July to 62.6, up 1.7 points from June, and close to its record of 63.6 in March. Employment (58.3) recorded its highest ever result over the history of the survey. An increasingly tight labour market, supply chain issues and raw material costs remain particularly problematic for manufacturers.

US employment continues to recover...

July data on the US labour market were more positive than expected, with the unemployment rate falling to 5.4% as employment grew by over one million people (Figure 2). There was little downside in the data, with the underutilisation rate also falling as the participation rate edged up slightly. While there is still significant progress to be made, with 6 million fewer people employed compared to pre-pandemic levels, the data give cause for optimism as concerns build around the Delta variant's rise.

Figure 2: US labour market statistics

Source: Haver

...while inflation momentum slows

Annual US consumer price inflation remained elevated in July, holding steady at 5.4%, though monthly growth slowed (Figure 3). When excluding food and energy, prices grew by 0.3% in the month, a significant slowdown compared to prior months. While the relatively subdued CPI inflation gives credence to the Federal Reserve's view that high inflation is transitory, rising producer price growth suggests that inflationary pressures may continue.

Figure 3: Consumer and producer price indexes

Source: Haver

In China, annual consumer price inflation remained subdued, falling to 1.0% in July. Weakening prices were largely driven by falling food prices - when excluding these, annual price growth showed more momentum, rising to 2.1%. Producer price growth remained high, though this has not appeared to have had a major impact on consumer prices.

Lockdowns weaken Australia confidence...

Australia's business confidence index declined sharply in July, falling 19 points to reach below zero for the first time this year (Figure 4). The fall was largely driven by New South Wales as the effects of a full month of lockdown were felt, though declining confidence was widespread across most states and industries. The index did not approach the lows seen in March and April 2020, providing hope that confidence can recover relatively quickly once restrictions are eased.

Figure 4: Australia confidence indexes

Source: Haver

Consumer confidence also took a hit, falling in August to the lowest level since September 2020. The drop was more moderate than expected, suggesting a degree of assurance among consumers that the pandemic will be brought back under control and economic growth will return.

...and GDP growth rebounds in the UK

The UK economy expanded 4.8% in the June quarter compared to the March quarter, driven by strong growth in private consumption, bringing GDP to 3.3% below pre-pandemic levels. The easing of restrictions should drive further growth in the September quarter, though the sharp rise in COVID-19 infections may limit economic activity.

Date Key upcoming NZ data Previous
16 August Performance of Services Index 58.6
18 August NZ Activity Index +6.0 (apc)
18 August Official Cash Rate 0.25

High-Frequency Indicators

Traffic and Freight Movement

Source: Waka Kotahi NZ Transport Agency

Card Spending

Source: Marketview data via MBIE

People Movements at Selected Locations

Source: Google

Jobseeker (JS) and Income Support Recipients

Source: MSD

COVID-19 Cases Per Million People

Source: World Health Organisation/Haver

World Commodity Prices

Source: ASB

Tables

Quarterly Indicators   2020Q1 2020Q2 2020Q3 2020Q4 2021Q1 2021Q2
Real Production GDP1 qpc -1.5 -10.8 14.1 -1.0 1.6 ...
  aapc 1.7 -1.6 -2.2 -2.9 -2.3 ...
Current account balance (annual) %GDP -2.8 -1.8 -0.8 -0.8 -2.2 ...
Merchandise terms of trade apc 5.4 6.3 -0.3 -1.6 -0.9 ...
CPI inflation qpc 0.8 -0.5 0.7 0.5 0.8 1.3
  apc 2.5 1.5 1.4 1.4 1.5 3.3
Employment (HLFS)1 qpc 1.0 -0.4 -0.6 0.7 0.6 1.1
Unemployment rate1 % 4.2 4.1 5.3 4.8 4.6 4.0
Participation rate1 % 70.7 69.9 70.1 70.2 70.4 70.5
LCI salary & wage rates - total2 apc 2.5 2.1 1.8 1.6 1.6 2.1
QES average hourly earnings - total2 apc 3.7 3.0 4.2 4.3 4.0 4.0
Core retail sales volume apc 4.0 -11.7 7.6 4.2 5.5 ...
Total retail sales volume apc 2.3 -14.2 8.1 4.6 6.8 ...
WMM - consumer confidence3 Index 104.2 97.2 95.1 106.0 105.2 107.1
QSBO - general business situation1,4 net% -66.2 -60.1 -38.2 -14.9 -7.9 10.1
QSBO - own activity outlook1,4 net% -12.3 -24.6 -0.6 10.6 7.8 27.6
Monthly Indicators   Feb 21 Mar 21 Apr 21 May 21 Jun 21 Jul 21
Merchandise trade balance (12 month total) NZ$m 2,386 1,701 765 -41 -252 ...
Dwelling consents - residential apc -4.7 44.7 83.7 17.3 24.0 ...
House sales - dwellings apc 19.8 37.0 439.7 86.4 9.8 -11.7
REINZ - house price index apc 21.3 23.9 26.8 29.7 30.0 30.7
Estimated net migration (12 month total) people 14,019 4,214 4,940 5,743 ... ...
ANZ NZ commodity price index apc 0.1 4.0 6.8 7.9 17.4 17.1
ANZ world commodity price index apc 11.0 20.2 24.2 25.2 27.8 22.5
ANZBO - business confidence net% 7.0 -4.1 -2.0 1.8 -0.6 -3.8
ANZBO - activity outlook net% 21.3 16.6 22.2 27.1 31.6 26.3
ANZ-Roy Morgan - consumer confidence net% 113.1 110.8 115.4 114.0 114.1 113.1
Weekly Benefit Numbers   2 Jul 9 Jul 16 Jul 23 Jul 30 Jul 6 Aug
Jobseeker Support number 190,257 190,008 189,528 189,150 188,193 187,761
Work Ready number 110,790 110,304 109,659 109,215 108,273 107,643
Health Condition and Disability number 79,470 79,704 79,866 79,932 79,920 80,115
COVID-19 Income Relief Payment number ... ... ... ... ... ...
Full-time number ... ... ... ... ... ...
Part-time number ... ... ... ... ... ...
Daily Indicators   Thu
5/8/21
Fri
6/8/21
Mon
9/8/21
Tue
10/8/21
Wed
11/8/21
Thu
12/8/21
NZ exchange and interest rates5              
NZD/USD $ 0.7047 0.7044 0.7010 0.6971 0.7006 0.7034
NZD/AUD $ 0.9543 0.9535 0.9537 0.9528 0.9541 0.9550
Trade weighted index (TWI) index 74.7 74.7 74.5 74.2 74.6 74.8
Official cash rate (OCR) % 0.25 0.25 0.25 0.25 0.25 0.25
90 day bank bill rate % 0.65 0.65 0.65 0.67 0.69 0.68
10 year govt bond rate % 1.59 1.62 1.66 1.69 1.71 1.72
Share markets6              
Dow Jones index 35,064 35,209 35,102 35,265 35,485 35,500
S&P 500 index 4,429 4,437 4,432 4,437 4,448 4,461
VIX volatility index index 17.3 16.2 16.7 16.8 16.1 15.6
AU all ords index 7,780 7,806 7,804 7,830 7,855 7,861
NZX 50 index 12,754 12,770 12,701 12,764 12,748 12,682
US interest rates              
3 month OIS % 0.10 0.10 0.10 0.10 0.10 ...
3 month Libor % 0.13 0.13 0.13 0.12 0.12 ...
10 year govt bond rate % 1.23 1.31 1.33 1.36 1.35 1.36
Commodity prices6              
WTI oil US$/barrel 69.09 68.26 66.56 68.33 69.25 ...
Gold US$/ounce 1,801 1,762.90 1,738.85 1,723.35 1,743.60 ...
CRB Futures index 560 560.27 558.96 558.38 559.78 ...

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

Country Indicator   Jan 21 Feb 21 Mar 21 2021Q1 Apr 21 May 21 Jun 21 2021Q2 Jul 21 Aug 21
United
States

[9.6%
share of
total goods
exports]
GDP1 qpc       1.5       1.6    
Industrial production1 mpc 1.1 -3.1 2.7   0.0 0.7 0.4   ... ...
CPI apc 1.4 1.7 2.6   4.2 5.0 5.4   5.4 ...
Unemployment rate1 % 6.3 6.2 6.0   6.1 5.8 5.9   5.4 ...
Employment change1 000s 233.0 536.0 785.0   269.0 614.0 938.0   943.0 ...
Retail sales value apc 9.4 6.5 29.7   53.4 27.6 18.0   ... ...
House prices2 apc 11.2 12.1 13.4   15.0 17.0 ...   ... ...
PMI manufacturing1 index 58.7 60.8 64.7   60.7 61.2 60.6   59.5 ...
Consumer confidence1,3 index 87.1 95.2 114.9   117.5 120.0 128.9   129.1 ...
Japan
[6.1%]
GDP1 qpc       -1.0       ...    
Industrial production1 mpc 3.1 -1.3 1.7   2.9 -6.5 6.2   ... ...
CPI apc -0.6 -0.4 -0.2   -0.4 -0.1 0.2   ... ...
Unemployment rate1 % 2.9 2.9 2.6   2.8 3.0 2.9   ... ...
Retail sales value apc 2.7 3.7 5.2   11.9 8.3 0.1   ... ...
PMI manufacturing1 index 49.8 51.4 52.7   53.6 53.0 52.4   53.0 ...
Consumer confidence1,4 index 30.0 33.7 36.1   34.8 34.2 37.6   37.5 ...
Euro area
[5.5%]
GDP1 qpc       -0.3       2.0    
Industrial production1 mpc 1.0 -1.2 0.6   0.7 -1.1 -0.3   ... ...
CPI apc 0.9 0.9 1.3   1.6 2.0 1.9   ... ...
Unemployment rate1 % 8.2 8.2 8.1   8.1 8.0 7.7   ... ...
Retail sales volume apc -4.9 -1.3 13.8   23.5 8.6 5.0   ... ...
PMI manufacturing1 index 54.8 57.9 62.5   62.9 63.1 63.4   62.8 ...
Consumer confidence5 index -15.5 -14.8 -10.8   -8.1 -5.1 -3.3   -4.4 ...
United
Kingdom

[2.7%]
GDP1 qpc       -1.6       4.8    
Industrial production1 mpc -1.6 0.5 1.5   -0.8 0.6 -0.7   ... ...
CPI apc 0.9 0.7 1.0   1.6 2.1 2.4   ... ...
Unemployment rate1 % 5.1 5.0 4.9   4.8 4.8 ...   ... ...
Retail sales volume apc -5.7 -3.7 7.0   42.2 24.7 9.8   ... ...
House prices6 apc 6.4 6.9 5.7   7.1 10.9 13.4   10.5 ...
PMI manufacturing1 index 54.1 55.1 58.9   60.9 65.6 63.9   60.4 ...
Consumer confidence1,5 index -28.0 -23.0 -16.0   -15.0 -9.0 -9.0   -7.0 ...
Australia
[15.8%]
GDP1 qpc       1.8       ...    
CPI apc       1.1       3.8    
Unemployment rate1 % 6.4 5.9 5.7   5.5 5.1 4.9   ... ...
Retail sales value apc 10.3 5.2 3.9   23.8 7.1 2.9   ... ...
House Prices7 apc       8.9       ...    
PMI manufacturing1 index 55.3 58.8 59.9   61.7 61.8 63.2   60.8 ...
Consumer confidence8 index 107.0 109.1 111.8   118.8 113.1 107.2   108.8 104.1
China
[24.3%]
GDP apc       18.3       7.9    
Industrial production apc 35.1 35.1 14.1   9.8 8.8 8.3   ... ...
CPI apc -0.3 -0.2 0.4   0.9 1.3 1.1   1.0 ...
PMI manufacturing1 index 51.3 50.6 51.9   51.1 51.0 50.9   50.4 ...
South
Korea

[3.0%]
GDP1 qpc       1.7       0.7    
Industrial production1 mpc -1.2 4.2 -0.7   -1.9 -1.0 2.2   ... ...
CPI apc 0.6 1.1 1.5   2.3 2.6 2.4   2.6 ...

(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

Last updated: 
Friday, 27 August 2021