Weekly economic update

Weekly Economic Update - 16 July 2021

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Weekly Economic Update 16 July 2021#

New South Wales travel bubble remains on hold#

The Trans-Tasman travel bubble with New South Wales (NSW) remains paused, as COVID-19 case numbers continue to increase, with over 500 locally acquired cases recorded over the past week. Victoria also recorded 11 new community cases on Wednesday, prompting a re-introduction of mask wearing rules and at least one state (Western Australia) imposing border restriction on travellers from Victoria.

House prices continue to increase#

The housing market continues to show resilience, with prices rising 1.5% in June to be up 29.8% over the year, matching the record high set the previous month (Figure 1). High sales volumes in recent months have coincided with near record low levels of inventory, resulting in the median number of days required to sell a house falling to 31 days – only slightly above the record low for a June month (30 days) in 2005.

Figure 1: House prices and sales

Figure 1: House prices and sales

Source: REINZ

High levels of sales activity seen recently are expected to support consumption and investment over the quarters ahead as new occupiers of residential properties fit out dwellings and carry out renovations. There are early signs that the rate of house price growth is easing, and we continue to expect that house price growth will ease over time, driven by the lower attractiveness of rental properties to investors, high levels of residential investment activity, constrained population growth and the prospect of rising interest rates over the coming year.

RBNZ calls early halt to asset purchasing…#

In Wednesday's Monetary Policy Review, the Reserve Bank of New Zealand (RBNZ) announced that it would halt additional asset purchases under the Large-Scale Asset Purchase (LSAP) programme by 23 July 2021.

The decision to bring forward the cessation of the LSAP programme from the original June 2022 target reflects fact that the New Zealand economy has performed better than expected, and inflationary pressures are increasing as a result of increasing domestic capacity pressures and growing labour and skills shortages. The Funding for Lending programme was left unchanged.

While the Official Cash Rate (OCR) remains unchanged at 0.25%, several banks have recently increased term deposit and mortgage lending rates, reflecting an expectation that rate rises will likely occur earlier than previously anticipated.

Households still spending…#

Core retail spending rose a seasonally adjusted 5.5% in the June quarter, led by an 18.1% bounce-back in hospitality spending coming out of the lockdowns that happened in the March quarter. Spending on consumer durables continued its strong run, up 3.9% over the quarter, and will likely be supported in coming quarters as households furnish newly-built or purchased houses.

…and inflation pressures increase#

Headline annual Consumer Price Index (CPI) inflation rose to a near 10-year high 3.3% in the June quarter, up from the 1.5% rate recorded in the year to March. House construction costs provided the largest contribution to increase, up 4.6% in the quarter and 7.4% over the year. As expected, higher petrol prices provided a boost to this quarter’s result, although this impact is expected to be transitory. Recent business survey measures indicate that firms are increasingly looking to pass on cost increases, with June ANZ Business Outlook survey inflation expectations rising 19 basis points to 2.4%.

A sharp rise in vegetable prices in the June month saw annual food prices increase 2.8% in the year ending June 2021, while the stock measure of rent prices increased 3.1% over the year.

Inflation rises in US, UK…#

Consumer price index (CPI) data for June from the United States (US) delivered another surprising outturn, with the headline and core (excluding food and energy) annual rates at 5.4% and 4.5%, respectively (Figure 2). This resulted in the market bringing forward its expectations for rate hikes by the US Federal Reserve Bank (Fed), with the first 25 basis point increase now priced for late-2022. A more than 10% increase in used vehicle prices accounted for close to 40% of the total monthly increase in the CPI in June, reflecting both strong demand and supply issues in the auto industry. Producer price inflation for the year to June was also higher than expected at 7.3%, up from 6.6% in the year to May.

Figure 2: Annual headline and core CPI in the US

Figure 2: Annual headline and core CPI in the US

Source: Haver

CPI inflation in the United Kingdom (UK) was also above expectations at an annual rate of 2.5% in June for the overall index and 2.3% for the core items. Following this release, Bank of England (BoE) Monetary Policy Committee member, Dave Ramsden, said inflation may peak at 4% this year, much higher than the BoE's current forecasts.

…while ECB changes target#

In its recently completed strategy review, the first since 2003, the European Central Bank (ECB) adopted a symmetric 2% inflation target. Previously, the target was 'close to but below 2%'. The next strategy review is due in 2025. The ECB president, Christine Lagarde, clarified that the bank will not aim to have periods of inflation above 2%, i.e. it will not implement an average inflation targeting regime as was adopted by the Fed in January 2021. Lagarde further noted that next week's Governing Council meeting will introduce 'some interesting variations and changes'.

Strong growth in Chinese trade continues…#

China's exports grew faster than expected in June in annual terms notwithstanding supply chain disruptions, marking the 12th consecutive month of growth, boosted by higher global demand as lockdowns were eased. Import growth was also higher than expected.

…activity remains solid…#

China's GDP expanded by 7.9% in the June 2021 quarter compared to the same quarter a year earlier, slightly below analyst expectations. Quarterly growth was 1.3%, higher than the March quarter expansion of 0.6%. Meanwhile, retail sales and industrial production data continued to grow strongly (and faster than expected) in June. The unemployment rate remained steady at 5%.

…central bank eases liquidity…#

The People's Bank of China (PBOC) last week cut reserve ratio requirements (RRR) for Chinese banks by 50 basis points to 8.9%, the first reduction since March 2020. Consumer price inflation in China remains contained, having eased in June to 1.1% in annual terms, from 1.3% the previous month. The PBOC have clarified that the policy change is a standard liquidity operation and not a change in monetary policy, though some interpret it as an attempt to boost liquidity levels amid tentative signs of a slowdown in domestic activity.

…and restrictions tightened in Asia#

Restrictions have been tightened in a number of countries in Asia in an attempt to curb the spread of the more infectious Delta variant of the COVID-19 virus (Figure 3). In Indonesia, the hardest hit in the region by the recent surge in cases, the government tightened restrictions in Bali and Java to try to stem the spread. Hospitals are struggling to cope with the increased load and there are shortages of oxygen. Official new daily infections and deaths are hovering at around 40,000 and 850, respectively, although other sources suggest the actual number is likely much higher. In South Korea, amid a record-high number of new cases, the government introduced Level 4 social distancing measures in Seoul for two weeks. In Japan, Tokyo entered its fourth state of emergency. Except for Singapore, Asia's progress in fully vaccinating the population against COVID-19 has been relatively slow.

Figure 3: COVID-19 Government Response Tracker

Figure 3: COVID-19 Government Response Tracker

Source: Blavatnik School of Government, University of Oxford

Australia unemployment falls…#

Australia's unemployment rate declined from 5.1% in May to 4.9% in June as the number of employed people increased by 0.2%, the number of unemployed fell by 3.1%, and the participation rate remained steady at 66.2%. Monthly hours worked fell by 33 million (1.8%) owing to a sharp fall (8.4%) in Victoria. Total hours worked are still 6.8% higher in annual terms.

…as business confidence deteriorates#

Confidence levels in Australia declined in June amidst increasing COVID-19 cases and restrictions on activity in NSW and Victoria. The National Australia Bank (NAB) index for business conditions fell by 12 points to +24, while the confidence index declined by 9 points to +11 (Figure 4), driven by services sectors in NSW and Queensland. Despite declining over the past two months, the business confidence index remains well above its long-run average. However, with restrictions in Greater Sydney extended for at least another two weeks, confidence levels may decline further in July. The NSW lockdown is costing around A$700 million a week according to the Australian Treasury. The recently announced A$5 billion assistance package should provide support to businesses and households over this period.

Figure 4: Australia business conditions and confidence

Figure 4: Australia business conditions and confidence

Source: Haver

Consumer confidence increased by 1.5% in July, as measured by the Westpac-Melbourne Institute Index of Consumer Sentiment. A sharp fall in NSW was more than offset by strong bounce-backs in other states where restrictions have been eased. The longer the lockdown in NSW is extended, the greater the risk that lower consumer confidence could spill over to other states.

 

Date Key upcoming NZ Data Previous
19 July Performance of Services Index 56.1
21 July NZ Activity Indicator 10.9% (apc)

High-Frequency Indicators#

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#

COVID-19 Cases

Sources: World Health Organisation/Haver

World Commodity Prices#

World Commodity Prices

Source: ASB

Tables#

Quarterly Indicators   2020Q1 2020Q2 2020Q3 2020Q4 2021Q1 2021Q1
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 -0.2 -0.7 0.6 0.5 ...
Unemployment rate1 % 4.3 4.0 5.2 4.9 4.7 ...
Participation rate1 % 70.7 69.9 70.2 70.2 70.4 ...
LCI salary & wage rates - total2 apc 2.5 2.1 1.8 1.6 1.6 ...
QES average hourly earnings - total2 apc 4.4 3.5 4.1 3.9 2.6 ...
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   Jan 21 Feb 21 Mar 21 Apr 21 May 21 Jun 21
Merchandise trade balance (12 month total) NZ$m 2,731 2,386 1,700 764 -62 ...
Dwelling consents - residential apc 18.0 -4.7 44.7 83.7 17.3 ...
House sales - dwellings apc 6.9 19.8 37.0 439.7 85.5 6.2
REINZ - house price index apc 18.9 21.3 23.9 26.8 29.9 30.0
Estimated net migration (12 month total) people 28,848 14,019 4,214 4,940 5,743 ...
ANZ NZ commodity price index apc -1.6 0.1 4.0 6.8 7.9 17.4
ANZ world commodity price index apc 5.2 11.0 20.2 24.2 25.2 27.8
ANZBO - business confidence net% ... 7.0 -4.1 -2.0 1.8 -0.6
ANZBO - activity outlook net% ... 21.3 16.6 22.2 27.1 31.6
ANZ-Roy Morgan - consumer confidence net% 113.8 113.1 110.8 115.4 114.0 114.1
Weekly Benefit Numbers   4 Jun 11 Jun 18 Jun 25 Jun 2 Jul 9 Jul
Jobseeker Support number 192,501 190,953 190,614 190,128 190,257 190,008
Work Ready number 113,484 112,047 111,510 110,946 110,790 110,304
Health Condition and Disability number 79,020 78,906 79,107 79,185 79,470 79,704
COVID-19 Income Relief Payment number ... ... ... ... ... ...
Full-time number ... ... ... ... ... ...
Part-time number ... ... ... ... ... ...
Daily Indicators   Wed
07/07/21
Thu
08/07/21
Fri
09/07/21
Mon
12/07/21
Tue
13/07/21
Wed
14/07/21
NZ exchange and interest rates5              
NZD/USD $ 0.7018 0.6984 0.6926 0.6988 0.7003 0.6990
NZD/AUD $ 0.9366 0.9365 0.9343 0.9350 0.9347 0.9373
Trade weighted index (TWI) index 74.2 74.0 73.5 73.9 74.0 74.1
Official cash rate (OCR) % 0.25 0.25 0.25 0.25 0.25 0.25
90 day bank bill rate % 0.34 0.35 0.34 0.32 0.33 0.33
10 year govt bond rate % 1.64 1.63 1.54 1.54 1.54 1.59
Share markets6              
Dow Jones index 34,682 34,422 34,870 34,996 34,889 34,933
S&P 500 index 4,358 4,321 4,370 4,385 4,369 4,374
VIX volatility index index 16.2 19.0 16.2 16.2 17.1 16.3
AU all ords index 7,599 7,615 7,545 7,605 7,612 7,632
NZX 50 index 12,748 12,753 12,690 12,763 12,785 12,720
US interest rates              
3 month OIS % 0.10 0.10 0.10 0.10 0.10 ...
3 month Libor % 0.12 0.12 0.13 0.13 0.13 ...
10 year govt bond rate % 1.33 1.30 1.37 1.38 1.42 1.37
Commodity prices6              
WTI oil US$/barrel 72.20 72.94 74.56 74.21 75.24 ...
Gold US$/ounce 1,805 1,807.70 1,806.00 1,792.40 1,813.85 ...
CRB Futures index 553 551.94 554.70 557.30 559.27 ...

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 Jan 21 Feb 21 Mar 21 2021Q1 Apr 21 May 21 Jun 21 2021Q2 Jul 21
United
States
[9.6%
share of
total goods
exports]
GDP1 qpc 1.1       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   ...
Unemployment rate1 %   6.3 6.2 6.0   6.1 5.8 5.9   ...
Employment change1 000s   233.0 536.0 785.0   269.0 583.0 850.0   ...
Retail sales value apc   9.4 6.5 29.7   53.4 28.1 ...   ...
House prices2 apc   11.2 12.0 13.4   14.9 ... ...   ...
PMI manufacturing1 index   58.7 60.8 64.7   60.7 61.2 60.6   ...
Consumer confidence1,3 index   87.1 95.2 114.9   117.5 120.0 127.3   ...
Japan
[6.1%]
GDP1 qpc 2.8       -1.0       ...  
Industrial production1 mpc   3.1 -1.3 1.7   2.9 -6.5 ...   ...
CPI apc   -0.6 -0.4 -0.2   -0.4 -0.1 ...   ...
Unemployment rate1 %   2.9 2.9 2.6   2.8 3.0 ...   ...
Retail sales value apc   2.7 3.7 5.2   11.9 8.3 ...   ...
PMI manufacturing1 index   49.8 51.4 52.7   53.6 53.0 52.4   ...
Consumer confidence1,4 index   30.0 33.7 36.1   34.8 34.2 37.6   ...
Euro area
[5.5%]
GDP1 qpc -0.6       -0.3       ...  
Industrial production1 mpc   1.1 -1.3 0.5   0.6 -1.0 ...   ...
CPI apc   0.9 0.9 1.3   1.6 2.0 ...   ...
Unemployment rate1 %   8.2 8.2 8.1   8.1 7.9 ...   ...
Retail sales volume apc   -4.8 -1.2 13.7   23.3 9.0 ...   ...
PMI manufacturing1 index   54.8 57.9 62.5   62.9 63.1 63.4   ...
Consumer confidence5 index   -15.5 -14.8 -10.8   -8.1 -5.1 -3.3   ...
United
Kingdom
[2.7%]
GDP1 qpc 1.3       -1.6       ...  
Industrial production1 mpc   -1.6 0.5 1.5   -1.0 0.7 ...   ...
CPI apc   ... ... ...   ... ... ...   ...
Unemployment rate1 %   5.1 5.0 4.9   4.8 4.8 ...   ...
Retail sales volume apc   -5.7 -3.6 7.1   42.5 24.6 ...   ...
House prices6 apc   6.4 6.9 5.7   7.1 10.9 13.4   ...
PMI manufacturing1 index   54.1 55.1 58.9   60.9 65.6 63.9   ...
Consumer confidence1,5 index   -28.0 -23.0 -16.0   -15.0 -9.0 -9.0   ...
Australia
[15.8%]
GDP1 qpc 3.2       1.8       ...  
CPI apc 0.9       1.1       ...  
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 ...   ...
House Prices7 apc 4.3       8.9       ...  
PMI manufacturing1 index   55.3 58.8 59.9   61.7 61.8 63.2   ...
Consumer confidence8 index   107.0 109.1 111.8   118.8 113.1 107.2   108.8
China
[24.3%]
GDP apc 6.5       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   ...
PMI manufacturing1 index   51.3 50.6 51.9   51.1 51.0 50.9   ...
South Korea
[3.0%]
GDP1 qpc 1.1       1.7       ...  
Industrial production1 mpc   -1.2 4.2 -0.7   -1.6 -0.7 ...   ...
CPI apc   0.6 1.1 1.5   2.3 2.6 2.4   ...

(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