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Weekly economic update

Weekly Economic Update - 21 August 2020

Weekly Economic Update - 21 August 2020

A total of 65 people who have tested positive for COVID-19 are now in quarantine in Auckland, and the city will remain at Alert Level 3 until 26 August as the rest of the country remains at Level 2. High-frequency data suggest that activity in Auckland dropped quickly after restrictions were reinstated. Affected businesses may be eligible for an additional two-week wage subsidy, and the mortgage deferral scheme has been extended into 2021. Performance indicators for manufacturing and services showed resilience in July and the housing market held up, though renewed COVID-19 outbreaks worldwide weighed on dairy prices.

Incoming data in the United States (US) and China remain consistent with expansion, but momentum is slowing. Elsewhere, the data showed June quarter GDP contracted considerably in Japan, Thailand and across Scandinavia. In Australia, employment and hours worked continued to recover in July, although these data predate the second Melbourne lockdown. The unemployment rate rose to 7.5%.

Community transmission continues…

A total of 65 people from the Auckland community who have tested positive for COVID-19 have been moved into the city’s quarantine facility. Household contacts of the community cases are also in quarantine. Genome testing has revealed that one of the new cases is not linked to the community cluster. Over 150,000 tests have been conducted since 12 August, bringing the total to over 650,000.

Figure 1: Daily COVID-19 tests and cases by source

Figure 1: Daily COVID-19 tests and cases by source

Source: Ministry of Health

…and Alert Level restrictions are extended…

Auckland will remain in Alert Level 3, and the rest of NZ in Level 2, until 26 August. New Zealand now rates 74 on the Government Response Stringency Index, above the OECD median (Figure 2).

Figure 2: Government Response Stringency Index

Figure 2: Government Response Stringency Index

Source: University of Oxford

…as Auckland activity falls

Traffic and card spending data suggest that activity in Auckland dropped quickly after Alert Level 3 was reinstated (Figure 3). On 17 August, light and heavy traffic fell to around 65% and 85% of 2019 levels, respectively, and card spending was around 75% of the average over January and February.

Figure 3: Auckland economic activity indicators

Figure 3: Auckland economic activity indicators

Sources: NZTA, Paymark and Verifone data via Data Ventures

Income support continues to rise

Around 22,800 people were receiving the COVID-19 Income Relief Payment (CIRP) as of 14 August, an increase of 800 on the previous week. The total number of people receiving income support (Jobseeker and CIRP) was 216,800 – up 1,800 on the week prior. Weekly growth continued to rise.

Further recovery for activity indicators…

The BNZ-BusinessNZ Performance of Manufacturing Index (PMI) rose again in July, up 2.6 points to 58.8, indicating that economic activity continued to improve (Figure 4). New orders rose 9.1 points but employment slipped by 2 points. The Performance of Services Index (PSI) remained unchanged from June at 54.3. Employment recovered, up 4.7 points, but sales and new business were both down 4.0 points. The GDP-weighted combined index rose 0.5 points to 55.0.

Figure 4: BNZ-BusinessNZ Performance Indexes

Figure 4: BNZ-BusinessNZ Performance Indexes

Source: BNZ-BusinessNZ

…as costs fall faster than output prices…

The June quarter Producers Price Index (PPI) showed that on average, across all industries, output prices fell by less (down 0.3%) than input prices (down 1.0%) in the quarter. The drop in input costs was driven by falling prices for crude oil, milk and meat. For the year as a whole, input prices fell (down 0.1%) while output prices rose by 1.5%.

…and house prices and sales are holding up

The housing market continued to show resilience, with house prices in July up 1.5% in the month to be 9.4% higher than a year ago. The number of properties sold in July increased 21.6% from a year ago, recording the highest number of sales in July for 5 years (Figure 5).

Pent-up demand from a period of restricted real estate activity in April and May, along with accommodative monetary policy has contributed to the strength in buyer interest in recent months. Median house prices rose 14.8% on an annual basis in July and, at $660,000, have largely retraced the fall seen in May, which reflects the strong level of interest from buyers. Median days to sell fell 7 days from July 2019 to 24, which is the lowest for the month of July in 4 years.

Figure 5: REINZ house prices and sales

Figure 5: REINZ house prices and sales

Source: REINZ

The housing market was stronger than expected in recent months, which poses upside risks to our forecasts. However, we expect the deteriorating labour market and the impact of lower migration from continued border restrictions to lower house prices in the year ahead. The recent outbreak of community-transmitted cases of COVID-19 in Auckland will also be adding increased uncertainty in the mix, particularly if the current period of heightened levels of restrictions on activity is extended.

Wage subsidy and mortgage deferrals extended

Businesses affected by the new lockdown measures may be eligible for a two-week wage subsidy if their revenue has declined by 40% for at least 14 days between 12 August and 10 September compared to last year. The revenue criteria for eligibility is consistent with the existing wage subsidy extension and the rate remains unchanged at $585.80 for full time employees and $350 for part-time employees working less than 20 hours per week. The subsidy is available nationwide. The Reserve Bank also announced that the mortgage deferral scheme will be extended to 31 March 2021.

Renewed outbreaks weigh on dairy prices

Dairy prices fell 1.7% in the latest GlobalDairyTrade auction as renewed outbreaks of COVID-19 in many parts of the world weigh on prices. WMP prices fell 2.2%, AMF was 2.9% lower and butter prices were down 2.0% while SMP prices rose 1.1%.

Growth momentum eases in July…

Incoming data in the United States (US) and China remain consistent with expansion, but momentum is slowing as the driver of the recovery rotates from the goods sector to the services sector, where social distancing remains a headwind to growth.

…but the pace remains solid in the US…

In the US, the S&P 500 stock market completed its recovery from February’s crash, reaching a fresh high on 18 August. Meanwhile, data shows that the economic recovery continued into July, albeit at a slowing pace. Headline retail sales rose 1.2% from June, and industrial production (IP) was 3.0% up on the previous month, driven by further increases in motor vehicle production and strong demand for consumer goods more generally. In level terms, retail sales have surpassed their pre-COVID levels but industrial output is down almost 9% (Figure 6). Housing starts and permits recorded monthly gains of 23% and 19% respectively, reflecting pent-up demand, low interest rates and increased demand for homes better suited to working from home. Analysts expect September quarter GDP to be around 5% higher than in the June quarter. This follows the 10% fall in the June quarter.

Figure 6: Industrial Production and Retail Sales

Figure 6: Industrial Production and Retail Sales

Source: Haver

…and China

In China, July data showed the annual expansion in IP was steady at 4.8%, driven by continued strength in automobile production, which was up 27% on a year ago. Analysts noted that heavy rains and floods likely slowed growth in the month. Retail sales continued to lag, despite solid motor vehicle sales, down 1.1% from a year ago and about 5% below its pre-virus level (Figure 6). Fixed asset investment was 6% higher than a year ago, led by property investment. Exports also performed strongly, up 7.2% on July 2019, helped by consumer goods exports. The economic recovery is expected to continue and the analyst consensus is for full-year 2020 growth to be around 1.5%.

Record GDP falls in Asia and Scandinavia

Elsewhere, the data have been less encouraging. In Japan, June quarter GDP was 7.8% lower than in the March quarter, the largest quarterly fall since WWII. Private consumption (-8.1%) and exports (-18.5%) led the fall. The outlook remains highly uncertain. There are signs new COVID-19 infections may be peaking, but analysts fear household income may fall sharply as fiscal support fades.

Thailand’s economy contracted at its sharpest pace in 22 years, with GDP down 9.7% in the June quarter compared to the previous quarter. The National Economic and Social Development Council cut its GDP forecast for 2020 to -7.3% to -7.8%, from -5% to -6% previously.

The contraction was less severe in the Scandinavian economies. Finland’s GDP fell 3.2% per cent in the three months to the end of June compared with the March quarter, while Denmark’s dropped by a record 7.4%. Both countries fared better than Sweden, which had no formal lockdown, where GDP contracted by 8.6%.

Australian unemployment rose to 7.5% in July

In Australia, employment and hours worked in July rose 0.9% and 1.3% respectively from June, although these data predate the second Melbourne lockdown. Unemployment rose to 7.5% from 7.4%, alongside a rise in the participation rate. The Treasury Secretary said unemployment could stay above 6% for four to five years. The Government announced a pilot programme to restart the international education sector. Up to 300 international students will start arriving in Adelaide soon.

Date Key NZ Data Previous
26 August Overseas merchandise trade -$1.2bn
28 August Monthly employment indicator + 0.8%

High-Frequency Indicators (Domestic)

Traffic Movement

Traffic Movement

Source: Waka Kotahi NZ Transport Agency

Freight Movement

Freight Movement

Source: Waka Kotahi NZ Transport Agency

Electricity Demand

Electricity Demand

Source: Electricity Authority

Retail Spending

Retail Spending

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

Source: RBNZ

Volatility Index

Volatility Index

Source: Haver

US Activity and Equities

US Activity and Equities

Sources: Federal Reserve Bank of New York, Haver

Labour Markets

Labour Markets

Source: Haver

COVID Cases

COVID Cases

Sources: World Health Organisation/Haver

World Commodity Prices

World Commodity Prices

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 -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 -3,283 -3,382 -2,403 -1,292 -1,196 ...
Dwelling consents - residential apc 6.0 -8.3 -16.5 -4.4 20.4 ...
House sales - dwellings apc 13.4 2.7 -77.2 -44.3 10.9 24.6
REINZ - house price index apc 8.5 9.0 8.6 7.0 7.7 9.4
Estimated net migration (12 month total) people 80,247 86,404 84,517 82,084 79,424 ...
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% -19.4 -63.5 -66.6 -41.8 -34.4 -31.8
ANZBO - activity outlook net% 12.0 -26.7 -55.1 -38.7 -25.9 -8.9
ANZ-Roy Morgan - consumer confidence net% 122.1 106.3 84.8 97.3 104.5 104.3
Weekly Benefit Numbers   10 Jul 17 Jul 24 Jul 31 Jul 7 Aug 14 Aug
Jobseeker Support number 192,053 192,327 192,374 192,488 193,094 193,997
Work Ready number 124,849 124,802 124,618 124,443 124,679 125,076
Health Condition and Disability number 67,204 67,525 67,756 68,045 68,415 68,921
               
COVID-19 Income Relief Payment number 16,524 18,592 20,023 20,957 21,988 22,834
Full-time number 14,930 16,812 18,077 18,863 19,745 20,518
Part-time number 1,594 1,780 1,946 2,094 2,243 2,316
Daily Indicators   Wed
12/08/20
Thu
13/08/20
Fri
14/08/20
Mon
17/08/20
Tue
18/08/20
Wed
19/08/20
NZ exchange and interest rates5              
NZD/USD $ 0.6538 0.6576 0.6537 0.6537 0.6548 0.6603
NZD/AUD $ 0.9171 0.917 0.9158 0.9095 0.9062 0.9121
Trade weighted index (TWI) index 71.3 71.5 71.2 71.0 70.9 71.4
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 0.29 0.28 0.28 0.28
10 year govt bond rate % 0.78 0.73 0.68 0.67 0.69 0.67
Share markets6              
Dow Jones index 27,977 27,897 27,931 27,845 27,778 27,693
S&P 500 index 3,380 3,373 3,373 3,382 3,390 3,375
VIX volatility index index 22.3 22.1 22.1 21.4 21.5 22.5
AU all ords index 6,257 6,224 6,262 6,219 6,269 6,314
NZX 50 index 11,492 11,501 11,452 11,673 11,849 11,751
US interest rates              
3 month OIS % 0.10 0.10 0.10 0.10 0.09 ...
3 month Libor % 0.26 0.28 0.27 0.27 0.25 ...
10 year govt bond rate % 0.69 0.71 0.71 0.69 0.67 0.68
Commodity prices6              
WTI oil US$/barrel 42.67 42.24 42.05 42.89 42.89 42.93
Gold US$/ounce 1,932 1,944.25 1,944.75 1,972.85 2,008.75 1,981.00
CRB Futures index 379 380.37 381.96 383.65 384.1 ...

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 -4.3   -12.8 0.9 5.7   3.0 ...
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 2.1   2.7 ...
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       -7.8    
Industrial production1 mpc 1.9 -0.3 -3.7   -9.8 -8.9 1.9   ... ...
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 -1.3   ... ...
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   0.4 ...
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 -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 -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   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 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, 21 August 2020