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Weekly economic update

Weekly Economic Update - 14 August 2020

Weekly Economic Update - 14 August 2020

COVID-19 has resurfaced in the New Zealand community, and Alert Levels 3 (in Auckland) and 2 (in the rest of NZ) have been reinstated. Weekly growth in income support numbers increased for the first time in six weeks. The NZ Activity Index shows economic activity was above 2019 levels in July, as retail card spending held up strongly. The RBNZ expanded the size and duration of its Large-Scale Asset Purchase programme, while business confidence slipped. Food prices rose on the back of higher vegetable prices.

Economic data releases from the United States (US) have continued to beat market expectations. In the United Kingdom (UK), the unemployment rate remained flat in the June quarter, but hours worked fell sharply, and GDP declined by more than 20% in the June quarter. In Australia, there were large falls in both business and consumer confidence. Globally, risk assets have performed well over the past week on the back of stronger than expected economic data.

Community transmission re-emerges…

After 102 days without a case of COVID-19 being locally acquired in New Zealand from an unknown source, the virus has resurfaced in the community. On Tuesday, four new cases of unknown origin were discovered in a South Auckland family. Thirteen new cases in the Auckland community were reported on Thursday, all of which were linked to those four family members. Total tests now exceed 500,000, around 10% of the population.

Figure 1: Daily COVID-19 cases by infection source

Figure 1: Daily COVID-19 cases by infection source

Source: Ministry of Health

…and Alert Level restrictions return

Auckland moved to Alert Level 3 on Wednesday, while the rest of the country moved to Level 2. All New Zealanders are required to practice physical distancing, and are encouraged to wear masks in public spaces. Anyone with flu-like symptoms is asked to get tested. Alert Levels are initially in place until midnight on Friday. If restrictions are extended, the Government has indicated that further business support would be considered.

Activity rises above 2019 levels in July…

The latest NZAC value shows that activity in July was 2% up on the same month last year. Most constituent indicators are above 2019 levels. For example, electronic card transactions and traffic movements were about 5% and 10% up on July last year, respectively. The main exception is labour market indicators, including Jobseeker plus COVID-19 Income Relief Payment (CIRP) recipients and online job vacancies, which continue to drag on the index. In addition, the NZAC value for June was revised up from -0.9% in the previous release to 0.6%, due to a large positive revision in the light truckometer index value for June.

Figure 2: New Zealand Activity Index

Figure 2: New Zealand Activity Index

Source: The Treasury, Stats NZ and RBNZ

…though income support continues to rise

Around 22,000 people were receiving the CIRP as of 7 August, an increase of 1,000 on the previous week. The number of Jobseeker Support recipients increased by 600. The total number of people receiving income support (Jobseeker and CIRP) was 215,000 - up 1,600 on the week prior. The weekly growth in income support numbers increased for the first time in six weeks.

The RBNZ delivers further easing

The Reserve Bank Monetary Policy Committee (MPC) increased their Large Scale Asset Purchase (LSAP) programme up to $100 billion (from $60 billion) and extended its duration from 12 to 22 months, to further lower retail interest rates. The eligible assets remain the same and the official cash rate remains unchanged at 0.25% in accordance with guidance issued on 16 March. They also indicated that a package for additional monetary instruments is being prepared for use if the need arises. These tools include a negative OCR, funding retail banks directly at near-OCR and purchases of foreign assets.

The RBNZ said that, despite spending and employment holding up better than expected, significant global risks persist and there remains a downside risk to their baseline economic scenario.

Business confidence slips again…

Preliminary data from the early-August ANZ Business Outlook adds to the evidence that the post-lockdown rebound may be over. Business confidence deteriorated by 10 points to -42.4% while own activity dropped 8 points to -17%. A net 15% of firms expect to reduce investment (an 8 point deterioration), and a net 32% expect lower profits (a 5 point fall). However, capacity utilisation improved by 5 points to -3%. Near-term employment intentions fell 6 points to a net 21% of firms expecting to cut jobs with the same net percentage reporting having fewer staff compared to last year. One-year-ahead inflation expectations fell slightly although expected costs and pricing intentions made small gains.

Figure 3: ANZ Business Outlook

Figure 3: ANZ Business Outlook

Source: ANZ, Stats NZ

…but retail card spending remains strong

Total electronic card spending rose 6.3% annually in July with retail card spending up 11.4%. Much of the growth driven by durables spending which rose 20% compared to July 2019. Card spending rose in 6 retail industries, including groceries, clothing, hospitality and cars (excluding fuel). In the month of July, total electronic card spending rose 1.2%.

While the increased spending on likely reflects pent-up demand following lockdown, a preference for using cards over cash may also be contributing to growth in electronic card spending.

Figure 4: Electronic card spending (annual % change)

Figure 4: Electronic card spending (annual % change)

Source: Stats NZ

Vegetable prices drive food prices higher

Seasonally adjusted food prices rose 0.6% in July, driven by a 7.7% increase in fruit and vegetable prices as imports of courgettes and cucumbers from Queensland were banned for biosecurity reasons. These increases were partly offset by a 1.2% fall in grocery prices, led by cheaper dairy products. Compared to July 2019, prices were 4.2% higher.

Migration falls sharply

The provisional estimate of net migration for the months of April May and June 2020 was zero, 400 and 500 respectively owing to border and travel restrictions. Provisional estimates for the year ended June 2020 show annual net migration at 79,400 with three-quarters of this gain coming in the six months leading up to the introduction of travel restrictions. Changing travel patterns are impacting the estimation of net migration for the most recent periods, with the most recent 6 months data potentially prone to revisions as further information becomes available.

US data beat expectations…

Economic data releases from the United States (US) have continued to beat market expectations. Initial jobless claims have continued declining, reaching 1.2 million - the lowest level in the COVID-19 period. Market expectations had been for a figure of above 1.4 million. Prior to COVID-19, initial claims were in the region of 212,000. Continuing claims (those who have collected unemployment benefits for at least two consecutive weeks) fell by 844,000, but still remain elevated at 16.1 million. Non-farm payrolls for July also beat expectations, rising by 1.8 million and the unemployment rate fell from 11.1% to 10.2% (Figure 5). However, the level of employment remains 8.4% below what it was in February, the duration of unemployment is rising for many, and the participation rate remains low.

Figure 5: US labour market

Figure 5: US labour market

Source: Haver

Republicans and Democrats have yet to agree on new fiscal stimulus, prompting the president to partly renew expanded unemployment benefits and suspend some payroll taxes by executive order. There has been some good news on the COVID-19 front, with hospitalisations and deaths slowing. However, total confirmed cases have increased by a million in the last two weeks, and some regions continue to report rising case numbers.

UK unemployment flat, but hours worked fall…

The unemployment rate in the United Kingdom (UK) was surprisingly flat in the June quarter at only 3.9%. The true state of the labour market is however being obscured by measurement issues as well as the government's job-retention schemes. Indeed, actual weekly hours worked fell by a record 18.4% (191.3 million) on a quarterly basis in the three months ending June. This was the steepest quarterly decline since estimates began in 1971, bringing total working hours to a level last since in November 1994. Average actual weekly hours fell by a record 5.6 hours to a record-low 25.8 hours.

…as June quarter GDP falls sharply

The UK's GDP fell by 20.4% in the June quarter compared to March, the steepest quarterly decline on record, and worse than other developed economies who have reported GDP data for the quarter. In the March quarter, UK GDP fell by 2.2%. A recovery is under way, with monthly GDP data showing an increase of 8.7% in June, following a 1.8% increase in May. However, high-frequency indicators such as electricity use and credit card spending remain well below pre-pandemic levels.

Australia confidence indicators deteriorate

The National Australia Bank (NAB) business confidence index deteriorated in July to -13.9 following an improvement in June. However, the business conditions index increased from -7.7 to 0.3. With the exception of Victoria, business conditions have improved to be broadly on par with pre-COVID-19 levels. The fall in confidence levels is a worry, especially as it came even before the announcement of tighter restrictions in Melbourne, suggesting that there will be a further decline in confidence in August. Business confidence levels in July were the weakest among retail and construction firms. The Westpac-Melbourne Institute Index of Consumer Sentiment fell from 87.9 in July to 79.5 in August, close to the level recorded in April (75.6) when the country went into national lockdown. Surprisingly, consumer sentiment fell by more in New South Wales (-15.5%) than in Victoria (-8.3%).

Global risk assets upbeat

Risk assets have performed well over the past week or so on the back of stronger than expected economic data as well as news that US President Trump is considering tax cuts on capital gains. The S&P500 is hovering near its all-time high reached in February this year. The US producer price index (PPI) for July increased by more than expected and by the quickest pace since October 2018, further fuelling inflation expectations, which put upward pressure on US bond yields. The US 10-year Treasury Note Yield has risen from a low of 0.52% recorded last week to above 0.6%, while the implied 10-year inflation rate remains above 1.6%.

Date Key NZ Data Previous
17 August BNZ Performance of Services 54.1
19 August Business Price Indexes + 0.1%

High-Frequency Indicators (Domestic)

Traffic Movement

Traffic Movement

Source: Waka Kotahi NZ Transport Agency

Freight Movement

Weekday Heavy Traffic, Annual Change

Source: Waka Kotahi NZ Transport Agency

Electricity Demand

Electricity Demand, Annual Change

Source: Electricity Authority

Retail Spending

Total consumer spend, 7-day rolling sum

Source: Paymark and Verifone data via Data Ventures

Jobseeker and Income Support Recipients

Jobseeker and Income Support Recipients

Source: MSD

Fiscal Support: Wage Subsidy (paid)

Fiscal Support: Wage Subsidy (paid)

Source: MSD

High-Frequency Indicators (Global)

Trade Weighted Index

Trade Weighted Index (17 Country)

Source: RBNZ

Volatility Index

Volatility Index

Source: Haver

US Activity and Equities

Weekly Economic Index, S&P 500 Index

Sources: Federal Reserve Bank of New York, Haver

Labour Markets

Unemployment and Participation Rate

Source: Haver

COVID-19 Cases

Daily New COVID-19 Cases

Sources: World Health Organisation/Haver

World Commodity Prices

ASB Commodity Indexes

Source: ASB

Tables

Quarterly Indicators   2019Q1 2019Q2 2019Q3 2019Q4 2020Q1 2020Q2
Real Production GDP1 qpc 0.4 0.1 0.8 0.5 -1.6 ...
  aapc 3.1 2.9 2.7 2.3 1.5 ...
Current account balance (annual) %GDP -3.6 -3.4 -3.3 -3.0 -2.7 ...
Merchandise terms of trade apc -1.9 -1.0 0.9 7.1 5.3 ...
CPI  inflation qpc 0.1 0.6 0.7 0.5 0.8 -0.5
  apc 1.5 1.7 1.5 1.9 2.5 1.5
Employment (HLFS)1 qpc -0.2 0.6 0.4 0.2 1.0 -0.4
Unemployment rate1 % 4.1 4.0 4.1 4.1 4.2 4.0
Participation rate1 % 70.3 70.3 70.4 70.1 70.5 69.7
LCI salary & wage rates - total2 apc 2.0 2.1 2.5 2.6 2.5 2.1
QES average hourly earnings - total2 apc 3.4 4.4 4.2 3.6 3.6 3.0
Core retail sales volume apc 3.9 3.6 5.4 3.3 4.0 ...
Total retail sales volume apc 3.3 2.9 4.5 3.3 2.3 ...
WMM - consumer confidence3 Index 103.8 103.5 103.1 109.9 104.2 97.2
QSBO - general business situation1,4 net% -27.0 -30.7 -38.0 -28.6 -68.0 -58.8
QSBO - own activity outlook1,4 net% 5.3 -2.0 -0.2 4.1 -13.9 -24.8
Monthly Indicators   Feb 20 Mar 20 Apr 20 May 20 Jun 20 Jul 20
Merchandise trade balance (12 month total) NZ$m -3283 -3382 -2403 -1292 -1196 ...
Dwelling consents - residential apc 6.0 -8.3 -16.5 -4.4 20.4 ...
House sales - dwellings apc 13.4 2.7 -77.2 -44.6 7.1 ...
REINZ - house price index apc 8.5 9.1 8.6 8.0 8.7 ...
Estimated net migration (12 month total) people 80247 86404 84517 82084 79424 ...
ANZ NZ commodity price index apc 6.6 5.8 0.9 -1.4 -2.5 -0.1
ANZ world commodity price index apc 0.1 -5.8 -9.2 -8.2 -5.3 -1.7
ANZBO - business confidence net% -19 -64 -67 -42 -34 -32
ANZBO - activity outlook net% 12 -27 -55 -39 -26 -9
ANZ-Roy Morgan - consumer confidence net% 122 106 85 97 105 104
Daily Indicators   Wed
5/8/20
Thu
6/8/20
Fri
7/8/20
Mon
10/8/20
Tue
11/8/20
Wed
12/8/20
NZ exchange and interest rates5              
NZD/USD $ 0.6636 0.6641 0.6683 0.6601 0.6610 0.6538
NZD/AUD $ 0.9245 0.9229 0.9245 0.9214 0.9217 0.9171
Trade weighted index (TWI) index 72.1 72.0 72.5 71.8 71.9 71.3
Official cash rate (OCR) % 0.25 0.25 0.25 0.25 0.25 0.25
90 day bank bill rate % 0.30 0.30 0.30 0.30 0.29 0.30
10 year govt bond rate % 0.72 0.78 0.77 0.77 0.78 0.78
Share markets6              
Dow Jones index 27202 27387 27433 27791 27687 27977
S&P 500 index 3328 3349 3351 3360 3334 3380
VIX volatility index index 23.0 22.7 22.2 22.1 24.0 22.3
AU all ords index 6136 6180 6145 6247 6272 6257
NZX 50 index 11758 11765 11647 11683 11645 11492
US interest rates              
3 month OIS % 0.10 0.10 0.10 0.10 0.10 ...
3 month Libor % 0.24 0.24 0.25 0.26 0.25 ...
10 year govt bond rate % 0.55 0.55 0.57 0.59 0.64 0.69
Commodity prices6              
WTI oil US$/barrel 42.19 41.95 41.16 41.94 41.53 42.67
Gold US$/ounce 2048 2067 2031 2045 1940 1932
CRB Futures index 378 380 379 380 379 379

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 20 Feb 20 Mar 20 2020
Q1
Apr 20 May 20 Jun 20 2020
Q2
Jul 20 Aug 20
United
States

[9.6%
share of
total goods
exports]
GDP1 qpc       -1.3       -9.5    
Industrial production1 mpc -0.4 0.1 -4.4   -12.7 1.4 5.4   ... ...
CPI apc 2.5 2.3 1.5   0.3 0.1 0.6   1.0 ...
Unemployment rate1 % 3.6 3.5 4.4   14.7 13.3 11.1   10.2 ...
Employment change1 000s 214.0 251.0 -1373.0   -20787.0 2725.0 4791.0   1763.0 ...
Retail sales value apc 4.9 4.5 -5.6   -19.9 -5.6 1.1   ... ...
House prices2 apc 3.1 3.5 3.9   3.9 3.7 ...   ... ...
PMI manufacturing1 index 50.9 50.1 49.1   41.5 43.1 52.6   54.2 ...
Consumer confidence1,3 index 130.4 132.6 118.8   85.7 85.9 98.3   92.6 ...
Japan
[6.1%]
GDP1 qpc       -0.6       ...    
Industrial production1 mpc 1.9 -0.3 -3.7   -9.8 -8.9 2.7   ... ...
CPI apc 0.6 0.5 0.4   0.2 0.0 0.1   ... ...
Unemployment rate1 % 2.4 2.4 2.5   2.6 2.9 2.8   ... ...
Retail sales value apc -0.4 1.6 -4.7   -13.9 -12.5 -1.2   ... ...
PMI manufacturing1 index 48.8 47.8 44.8   41.9 38.4 40.1   45.2 ...
Consumer confidence1,4 index 39.2 38.2 31.1   21.3 24.1 28.5   29.5 ...
Euro area
[5.5%]
GDP1 qpc       -3.6       -12.1    
Industrial production1 mpc 1.9 -0.1 -11.8   -18.0 12.3 9.1   ... ...
CPI apc 1.4 1.2 0.7   0.3 0.1 0.3   ... ...
Unemployment rate1 % 7.4 7.2 7.2   7.5 7.7 7.8   ... ...
Retail sales volume apc 2.3 2.6 -8.2   -19.4 -3.1 1.3   ... ...
PMI manufacturing1 index 47.9 49.2 44.5   33.4 39.4 47.4   51.8 ...
Consumer confidence5 index -8.1 -6.6 -11.6   -22.0 -18.8 -14.7   -15.0 ...
United
Kingdom

[2.7%]
GDP1 qpc       -2.2       -20.4    
Industrial production1 mpc 0.2 0.3 -4.3   -20.4 6.2 9.4   ... ...
CPI apc 1.8 1.7 1.5   0.8 0.6 0.6   ... ...
Unemployment rate1 % 3.9 4.0 3.9   3.9 3.9 3.9   ... ...
Retail sales volume apc 0.8 0.0 -6.1   -22.8 -13.0 -1.7   ... ...
House prices6 apc 1.9 2.3 3.0   3.7 1.8 -0.1   1.5 ...
PMI manufacturing1 index 50.0 51.7 47.8   32.6 40.7 50.1   53.3 ...
Consumer confidence1,5 index -6.5 -6.2 -8.2   -22.7 -23.7 -21.0   -16.6 ...
Australia
[15.8%]
GDP1 qpc       -0.3       ...    
CPI apc       2.2       -0.3    
Unemployment rate1 % 5.3 5.1 5.2   6.4 7.1 7.4   7.5 ...
Retail sales value apc 2.2 5.7 9.4   -8.9 5.5 8.6   ... ...
House Prices7 apc       8.1       ...    
PMI manufacturing1 index 45.4 44.3 53.7   35.8 41.6 51.5   53.5 ...
Consumer confidence8 index 93.4 95.5 91.9   75.6 88.1 93.7   87.9 79.5
China
[24.3%]
GDP apc       -6.8       3.2    
Industrial production apc -13.5 -13.5 -1.1   3.9 4.4 4.8   ... ...
CPI apc 5.4 5.2 4.3   3.3 2.4 2.5   2.7 ...
PMI manufacturing1 index 50.0 35.7 52.0   50.8 50.6 50.9   51.1 ...
South
Korea

[3.0%]
GDP1 qpc       -1.3       -3.3    
Industrial production1 mpc -1.5 -3.7 4.9   -6.6 -7.0 7.2   ... ...
CPI apc 1.5 1.1 1.0   0.1 -0.3 -0.0   0.3 ...

(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, 14 August 2020