Weekly economic update

Weekly Economic Update - 15 October 2021

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Weekly Economic Update - 15 October 2021#

While parts of the country are experiencing a bounce back in activity, ongoing restrictions in the northern regions mean that the recovery is not complete. Activity is expected to continue recovering as restrictions ease, although there are downside risks stemming from prolonged restrictions and the possibility that labour supply and overall demand falls as a result of people choosing to isolate if COVID-19 becomes endemic. However, businesses appear to have remained optimistic for now, and continued high house price growth in areas outside of Auckland suggests that underlying demand remains resilient.

Card spending fell during lockdown…#

Total electronic card spending fell 13.4% in the September quarter owing to higher alert levels that began in mid-August. While that took spending to around 7% lower in the September quarter compared to a year ago, the fall was smaller than that experienced in the June 2020 quarter (Figure 1).

Figure 1: Consumer spending

Figure 1: Consumer spending

Source: Stats NZ

Within the last month of the September quarter, easing restrictions meant that card spending was able to increase 1.6% from August. High frequency data shows that spending in Auckland continues to recover as restrictions ease, but the national recovery has broadly stabilised with activity below 2019 levels. With parts of the Waikato and Northland returning to Alert Level 3, the recovery may be slower than after the 2020 lockdown, particularly as ongoing supply-chain disruptions, shortages and restrictions weigh on activity. However, spending in most Alert Level 2 regions continues to be above 2019 levels.

…and house price growth eased#

Regional differences in alert level settings were reflected in the housing market as well. Monthly house price growth in the REINZ House Price Index (HPI) eased to 1.4% in September, with Alert Level 4 settings in Auckland slowing growth to 0.3% there. However, other regions saw prices continuing to rise at a rapid 2.4% per month, suggesting that overall demand remains resilient. Over the year ahead however, rising mortgage rates, tightening loan-to-value ratios restrictions and rising unaffordability are expected to slow the pace of house price growth.

Figure 2: House prices and sales

Figure 2: House prices and sales

Source: REINZ

Inflationary pressures are still building…#

The preliminary October release of the ANZ Business Outlook survey (ANZBO) shows that inflationary pressures remain intense, with both cost expectations and pricing intentions higher. Despite rising cost pressures, expected profitability rose, and only a net 3% of firms now expect lower profits. High cost pressures, pricing intentions and resilient activity during the Delta-outbreak are expected to produce a further increase in inflation from the 3.3% annual rate recorded in June. Data for the September 2021 quarter Consumers Price Index will be released on 18 October 2021.

…but business confidence remains resilient#

Expectations of firms' own activity rose 6 points in the preliminary October ANZBO to a net 26.2% expecting improving conditions ahead, which may be based on expectations of easing restrictions ahead. However, if restrictions are in place for longer than expected, the economic recovery will also be drawn out.

A combination of high consumer price index (CPI) inflation and weak employment growth is posing challenges for central banks around the world, who face trade-offs between supporting the labour market recovery and reining in price growth.

US employment growth disappoints…#

Employment numbers disappointed for a second month in the US, rising less than expected in September to end up 3.2% below pre-pandemic levels (Figure 3). The unemployment rate fell to 4.8%, though this was partly driven by a fall in labour force participation, which has remained stubbornly low over the past year as the ongoing spread of COVID-19 deters people from returning to work. The labour market appears tight, with average hourly wages growing 4.6% in the year to September, indicating that weak labour supply could put upward pressure on consumer prices.

Figure 3: US labour market

Figure 3: US labour market

Source: Haver

…while Australian unemployment rises#

Australia's unemployment rate rose slightly to 4.6% in September, as employment and labour force participation both decreased. Employment fell back below its pre-pandemic level, while the participation rate was the lowest since June 2020. Australia's labour market appeared strong prior to the recent outbreak of COVID-19, and should begin to recover again in October as activity restrictions are eased, though the participation rate may lag while community transmission of the virus remains high.

Inflation remains elevated in the US…#

In the US, annual CPI inflation remained elevated in September, rising slightly to 5.4% (Figure 4). Core inflation, which excludes volatile food and energy prices, remained steady at 4.0%, indicating strong underlying price pressures, and producer price index (PPI) inflation reached a record high.

Figure 4: Consumer and producer price indexes

Figure 4: Consumer and producer price indexes

Source: Haver

While CPI inflation remained subdued in China in September, PPI inflation rose to a record high. Surging coal prices were the main contributor, and these will also curb industrial production as factories face power shortages.

…prompting the Fed to plan stimulus reduction#

Minutes from the September meeting of the US Federal Reserve board reveal that asset purchases will likely begin to reduce before the end of this year, with the programme concluding around the middle of 2022. While monetary support is set to be reduced within the next two months, interest rates will likely be stable until maximum employment is reached, which could be some time given the disruption to the labour market recovery caused by the spread of the Delta variant. Members continue to view elevated inflation as transitory, expecting that the upward pressure on prices will abate over 2022 as demand and supply imbalances subside. Upside risks were noted, however, with longer-lasting supply issues and inflation expectations possibly resulting in more persistent inflation.

Business confidence rises as Australia reopens#

Australia's business confidence rose sharply in September, as firms looked forward to the planned easing of restrictions announced in New South Wales (NSW) and Victoria. Business conditions, a measure of current trading conditions, profitability and employment, fell as restrictions continued to supress activity, but a recovery is likely as the two largest states reopen this month. This week, fully vaccinated people will be allowed greater freedom in NSW, while Melbourne's lockdown is set to end on 26 October when vaccination targets are met.

Date Key upcoming NZ data Previous
18 October BNZ Performance of Services 35.6 (index)
18 October Consumers Price Index 3.3 (apc)

High-Frequency Indicators[1]#

Traffic and Freight Movement#

Traffic and Freight Movement

Source: Waka Kotahi NZ Transport Agency

Card Spending#

Card Spending

Source: Marketview data via MBIE

People Movements at Selected Locations#

People Movements at Selected Locations

Source: Google

Jobseeker (JS) and Income Support Recipients#

Jobseeker (JS) and Income Support Recipients

Source: MSD

COVID-19 Cases Per Million People#

COVID-19 Cases Per Million People

Source: World Health Organisation/HaverCard Spending

World Commodity Prices#

World Commodity Prices

Source: ASB

Notes
  1. [1] Additional high frequency indicators are available on the Stats NZ COVID-19 data portal: https://www.stats.govt.nz/experimental/covid-19-data-portal

Tables#

Quarterly Indicators   2020Q2 2020Q3 2020Q4 2021Q1 2021Q2 2021Q3
Real Production GDP1 qpc -9.9 13.9 -1.0 1.4 2.8 ...
  aapc -1.3 -1.6 -2.1 -1.4 5.1 ...
Current account balance (annual) %GDP -1.5 -0.7 -0.8 -2.5 -3.3 ...
Merchandise terms of trade apc 6.3 -0.3 -1.6 -0.9 0.0 ...
CPI  inflation qpc -0.5 0.7 0.5 0.8 1.3 ...
  apc 1.5 1.4 1.4 1.5 3.3 ...
Employment (HLFS)1 qpc -0.4 -0.6 0.7 0.6 1.1 ...
Unemployment rate1 % 4.1 5.3 4.8 4.6 4.0 ...
Participation rate1 % 69.9 70.1 70.2 70.4 70.5 ...
LCI salary & wage rates - total2 apc 2.1 1.8 1.6 1.6 2.1 ...
QES average hourly earnings - total2 apc 3.0 4.2 4.3 4.0 4.0 ...
Core retail sales volume apc -11.7 7.6 4.4 5.4 30.2 ...
Total retail sales volume apc -14.2 8.1 4.7 6.6 33.3 ...
WMM - consumer confidence3 Index 97.2 95.1 106.0 105.2 107.1 102.7
QSBO - general business situation1,4 net% -61.2 -36.7 -15.0 -8.2 8.6 -8.4
QSBO - own activity outlook1,4 net% -25.0 1.1 9.5 7.5 27.1 9.3
Monthly Indicators   May 21 Jun 21 Jul 21 Aug 21 Sep 21 Oct 21
Merchandise trade balance (12 month total) NZ$m -49 -277 -1,099 -2,944 ... ...
Dwelling consents - residential apc 17.3 24.0 24.2 42.3 ... ...
House sales - dwellings apc 86.4 10.4 -9.1 -23.8 -37.9 ...
REINZ - house price index apc 29.7 29.9 30.4 31.0 30.5 ...
Estimated net migration (12 month total) people 2,441 2,321 3,342 2,382 ... ...
ANZ NZ commodity price index apc 7.9 17.6 16.9 15.4 17.4 ...
ANZ world commodity price index apc 25.2 28.0 22.2 21.5 23.6 ...
ANZBO - business confidence net% 1.8 -0.6 -3.8 -14.2 -7.2 -8.6
ANZBO - activity outlook net% 27.1 31.6 26.3 19.2 18.2 26.2
ANZ-Roy Morgan - consumer confidence net% 114.0 114.1 113.1 109.6 104.5 ...
Weekly Benefit Numbers   3 Sep 10 Sep 17 Sep 24 Sep 1 Oct 8 Oct
Jobseeker Support number 194,280 194,898 194,907 194,571 193,632 192,612
Work Ready number 112,749 113,316 113,322 112,956 112,056 111,120
Health Condition and Disability number 81,528 81,579 81,588 81,615 81,579 81,489
Daily Indicators   Thu
7/10/21
Fri
8/10/21
Mon
11/10/21
Tue
12/10/21
Wed
13/10/21
Thu
14/10/21
NZ exchange and interest rates5              
NZD/USD $ 0.6919 0.6942 0.6938 0.6927 0.6934 0.6976
NZD/AUD $ 0.9495 0.9483 0.9483 0.9439 0.9447 0.9440
Trade weighted index (TWI) index 74.0 74.2 74.1 74.0 74.1 74.3
Official cash rate (OCR) % 0.50 0.50 0.50 0.50 0.50 0.50
90 day bank bill rate % 0.65 0.66 0.66 0.66 0.68 0.68
10 year govt bond rate % 2.00 2.02 2.07 2.13 2.09 2.10
Share markets6              
Dow Jones index 34,755 34,746 34,496 34,378 34,378 34,913
S&P 500 index 4,400 4,391 4,361 4,351 4,364 4,438
VIX volatility index index 19.5 18.8 20.0 19.9 18.6 16.9
AU all ords index 7,551 7,617 7,601 7,576 7,572 7,620
NZX 50 index 13,105 13,087 13,019 12,996 13,025 13,048
US interest rates              
3 month OIS % 0.08 0.08 0.08 0.08 0.08 ...
3 month Libor % 0.12 0.12 0.12 0.13 0.12 ...
10 year govt bond rate % 1.58 1.61 ... 1.59 1.56 1.52
Commodity prices6              
WTI oil US$/barrel 78.30 79.55 ... 80.75 80.67 ...
Gold US$/ounce 1,762 1,773.25 1,757.65 1,767.75 1,785.70 ...
CRB Futures index 560 562.43 561.74 560.89 561.33 ...

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   2020Q4 Apr 21 May 21 Jun 21 2021Q1 Jul 21 Aug 21 Sep 21 2021Q2 Oct 21
United
States

[9.6%
share of
total goods
exports]
GDP1 qpc 1.1       1.5       1.6  
Industrial production1 mpc   0.1 0.6 0.5   0.8 0.4 ...   ...
CPI apc   4.2 5.0 5.4   5.4 5.3 5.4   ...
Unemployment rate1 %   6.1 5.8 5.9   5.4 5.2 4.8   ...
Employment change1 000s   269.0 614.0 962.0   1091.0 366.0 194.0   ...
Retail sales value apc   53.4 28.0 18.9   15.1 15.1 ...   ...
House prices2 apc   15.2 17.2 19.1   19.9 ... ...   ...
PMI manufacturing1 index   60.7 61.2 60.6   59.5 59.9 61.1   ...
Consumer confidence1,3 index   117.5 120.0 128.9   125.1 115.2 109.3   ...
Japan
[6.1%]
GDP1 qpc 2.8       -1.1       0.5  
Industrial production1 mpc   2.9 -6.5 6.5   -1.5 -3.6 ...   ...
CPI apc   -1.1 -0.7 -0.4   -0.3 -0.4 ...   ...
Unemployment rate1 %   2.8 3.0 2.9   2.8 2.8 ...   ...
Retail sales value apc   11.9 8.3 0.1   2.4 -3.2 ...   ...
PMI manufacturing1 index   53.6 53.0 52.4   53.0 52.7 51.5   ...
Consumer confidence1,4 index   34.8 34.2 37.6   37.5 36.6 38.0   ...
Euro area
[5.5%]
GDP1 qpc -0.4       -0.3       2.2  
Industrial production1 mpc   0.7 -1.1 0.2   1.4 -1.6 ...   ...
CPI apc   1.6 2.0 1.9   2.2 3.0 ...   ...
Unemployment rate1 %   8.2 8.0 7.8   7.6 7.5 ...   ...
Retail sales volume apc   23.7 8.7 5.6   3.1 0.0 ...   ...
PMI manufacturing1 index   62.9 63.1 63.4   62.8 61.4 58.6   ...
Consumer confidence5 index   -8.1 -5.1 -3.3   -4.4 -5.3 -4.0   ...
United
Kingdom

[2.7%]
GDP1 qpc 1.1       -1.4       5.5  
Industrial production1 mpc   -0.4 0.9 -0.6   0.2 0.8 ...   ...
CPI apc   1.6 2.1 2.4   2.1 3.0 ...   ...
Unemployment rate1 %   4.8 4.8 4.7   4.6 4.5 ...   ...
Retail sales volume apc   42.1 24.6 9.1   1.9 0.0 ...   ...
House prices6 apc   7.1 10.9 13.4   10.5 11.0 10.0   ...
PMI manufacturing1 index   60.9 65.6 63.9   60.4 60.3 57.1   ...
Consumer confidence1,5 index   -15.0 -9.0 -9.0   -7.0 -8.0 -13.0   ...
Australia
[15.8%]
GDP1 qpc 3.2       1.9       0.7  
CPI apc 0.9       1.1       3.8  
Unemployment rate1 %   5.5 5.1 4.9   4.6 4.5 4.6   ...
Retail sales value apc   23.8 7.1 2.9   -2.9 -0.7 ...   ...
House Prices7 apc 4.3       8.9       19.8  
PMI manufacturing1 index   61.7 61.8 63.2   60.8 51.6 51.2   ...
Consumer confidence8 index   118.8 113.1 107.2   108.8 104.1 106.2   104.6
China
[24.3%]
GDP apc 6.5       18.3       7.9  
Industrial production apc   9.8 8.8 8.3   6.4 5.3 ...   ...
CPI apc   0.9 1.3 1.1   1.0 0.8 0.7   ...
PMI manufacturing1 index   51.1 51.0 50.9   50.4 50.1 49.6   ...
South
Korea

[3.0%]
GDP1 qpc 1.1       1.7       0.8  
Industrial production1 mpc   -1.9 -1.3 2.3   0.2 -0.7 ...   ...
CPI apc   2.3 2.6 2.4   2.6 2.6 2.5   ...

(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