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
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
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
…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
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)|
Traffic and Freight Movement
Source: Waka Kotahi NZ Transport Agency
Source: Marketview data via MBIE
People Movements at Selected Locations
Jobseeker (JS) and Income Support Recipients
COVID-19 Cases Per Million People
Source: World Health Organisation/HaverCard Spending
World Commodity Prices
-  Additional high frequency indicators are available on the Stats NZ COVID-19 data portal: https://www.stats.govt.nz/experimental/covid-19-data-portal
|Real Production GDP1||qpc||-9.9||13.9||-1.0||1.4||2.8||...|
|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||...|
|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|
|Health Condition and Disability||number||81,528||81,579||81,588||81,615||81,579||81,489|
|NZ exchange and interest rates5|
|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|
|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|
|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|
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|
|Retail sales value||apc||53.4||28.0||18.9||15.1||15.1||...||...|
|Retail sales value||apc||11.9||8.3||0.1||2.4||-3.2||...||...|
|Retail sales volume||apc||23.7||8.7||5.6||3.1||0.0||...||...|
|Retail sales volume||apc||42.1||24.6||9.1||1.9||0.0||...||...|
|Retail sales value||apc||23.8||7.1||2.9||-2.9||-0.7||...||...|
(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