Weekly economic update

Weekly Economic Update - 23 July 2021

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Weekly Economic Update 23 July 2021#

Travel bubbles with Australian states paused#

Quarantine free travel with New South Wales, Victoria and South Australia are paused until at least next week as these states introduce restrictions to curb the spread of the delta variant.

An announcement about the travel bubble is expected on Friday afternoon.

Activity indicators are up across the board…#

The BNZ-BusinessNZ Performance of Manufacturing Index (PMI) rose by 2.1 points to 60.7 in June. A reading above 50 indicates that the sector is expanding. Two of the major sub-index values of production (64.5) and new orders (63.6) remained particularly strong. Despite the pick-up in activity, the proportion of negative comments (53.1%) remained higher than positive ones. Challenges faced by both manufacturers and services businesses include significant labour shortages and logistics disruptions.

The services sector remained in expansionary territory for the fourth consecutive month according to the BNZ-BusinessNZ Performance of Services Index (PSI). The PSI rose 2.3 points to 58.6 in June, driven by expansion in the sub-indices of activity/sales (62.5) and new orders/business (66.1). The GDP-weighted Combined Index (PCI) rose 2.0 points to 59.1.

BNZ noted that combined, the PSI and PMI point to an annual GDP for the year ended June 2021 of around 4% (Figure 1).

Figure 1: Real production GDP and PCI

Figure 1: Real production GDP and PCI

Source: Stats NZ, BNZ-BusinessNZ

This result is consistent with results from the Quarterly Survey of Business Opinion (QSBO) which shows that domestic trading activity for the past 3 months points to an annual GDP lift of around 4% (Figure 2).

Figure 2: Domestic trading activity and GDP

Figure 2: Domestic trading activity and GDP

Source: Stats NZ, NZIER

The New Zealand Activity Index (NZAC) is also up 6.0% on June last year. Activity indicators are up across the board, with particularly strong growth in online job advertisements and falling jobseeker numbers. Traffic flows and card transactions are also firmly up on the same time last year.

This strong outturn is partly driven by activity indicators being lower than usual in June last year while the economy was in recovery following COVID restrictions. Most activity indicators have now recovered to above their pre-COVID-19 values.

…reflected in strength in tax revenues#

These indicators of activity are also consistent with the recent strength seen in tax revenue outturns. Total unconsolidated tax revenue for the eleven months ended May 2021 was $4.5 billion (4.7%) above the 2021 Budget Economic and Fiscal Update forecast and $13.7 billion (15.6%) more than last year. Corporate tax, GST, source deductions, resident withholding tax on dividends and other persons tax were all above forecast.

Dairy prices continue to fall at auction#

Dairy prices fell 2.9% in US dollar terms at this week's GlobalDairyTrade auction, led by a 5.2% fall in skim milk powder prices and a 3.8% fall in whole milk powder prices. While this is the seventh consecutive fall at auction, dairy prices are still up almost 20% year on year.

Strong US consumer spending continues…#

Retail spending in the US continued to rise in June, remaining well above the pre-pandemic trend (Figure 3). Restaurant spending was a key driver of growth in the month, increasing 2.3% to exceed the pre-pandemic peak by more than 5%. Preliminary July consumer sentiment unexpectedly fell, possibly owing to rising COVID-19 cases.

Figure 3: US retail sales and industrial production

Figure 3: US retail sales and industrial production

Source: Haver

The recovery in industrial production has been more subdued, with the index still around 1% below pre-pandemic levels in June. Production was up 1.4% for the quarter as a whole, indicating robust growth in June quarter GDP.

…as inflation remains contained in Europe…#

Annual consumer price inflation in the euro area eased slightly in June, remaining around the European Central Bank's 2% target (Figure 4). Price pressures will likely pick up in the second half of the year as easing restrictions allow for a further recovery in demand.

Figure 4: Consumer price index

Figure 4: Consumer price index

Source: Haver

In Japan, annual inflation reached above zero for the first time since September 2020, driven by higher energy costs as world oil prices rose. When excluding fresh food and energy costs, consumer prices were down 0.2% on an annual basis, reflecting persistently weak consumer demand.

…and UK employment recovery stalls#

The UK unemployment rate was unchanged at 4.8% in the three months to June, as the number of people in employment and in the labour force both remained flat (Figure 5). Easing restrictions in the UK should be positive for employment, although rising COVID-19 cases are a threat to the recovery.

Figure 5: UK labour market (3-mth moving average)

Figure 5: UK labour market (3-mth moving average)

Source: Haver

Spread of Delta strain threatens global recovery#

Global COVID-19 infections are on the rise as the more infectious Delta strain takes hold in countries where the virus had been relatively contained. On 19 July, daily cases in the UK were trending at around 50,000 as all restrictions were removed in England, while a similar number of new cases were recorded in the US. The high vaccination rates in the two countries have proven effective in reducing the severity of symptoms, with deaths remaining low despite the sharp rise in new cases.

The rise of the Delta strain has been particularly notable in Asia, where low vaccination rates have allowed the virus to spread. Daily cases have spiked in Thailand and Vietnam, where COVID-19 was contained throughout 2020. The spread has also been severe in Australia, with lockdown restrictions being introduced in South Australia and extended in Victoria this week while daily cases remain high in New South Wales.

Date Key upcoming NZ Data Previous
26 July Merchandise trade balance - $0.3 billion
29 July ANZ Business Confidence - 0.6 (net %)
30 July ANZ Consumer Confidence 114.1 (index)
30 July Residential building consents - 2.8 (mpc)

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

Source: World Health Organisation/Haver

World Commodity Prices#

World Commodity Prices

Source: ASB

Tables#

Quarterly Indicators   2020Q1 2020Q2 2020Q3 2020Q4 2021Q1 2021Q2
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   11 Jun 18 Jun 25 Jun 2 Jul 9 Jul 16 Jul
Jobseeker Support number 190,953 190,614 190,128 190,257 190,008 189,528
Work Ready number 112,047 111,510 110,946 110,790 110,304 109,659
Health Condition and Disability number 78,906 79,107 79,185 79,470 79,704 79,866
COVID-19 Income Relief Payment number ... ... ... ... ... ...
Full-time number ... ... ... ... ... ...
Part-time number ... ... ... ... ... ...
Daily Indicators   Wed
14/7/21
Thu
15/7/21
Fri
16/7/21
Mon
19/7/21
Tue
20/7/21
Wed
21/7/21
NZ exchange and interest rates5              
NZD/USD $ 0.6990 0.7013 0.6993 0.6984 0.6940 0.6920
NZD/AUD $ 0.9373 0.9395 0.9427 0.9464 0.9448 0.9453
Trade weighted index (TWI) index 74.1 74.2 74.1 74.2 73.8 73.7
Official cash rate (OCR) % 0.25 0.25 0.25 0.25 0.25 0.25
90 day bank bill rate % 0.33 0.41 0.43 0.47 0.46 0.45
10 year govt bond rate % 1.59 1.64 1.67 1.61 1.54 1.53
Share markets6              
Dow Jones index 34,933 34,987 34,688 33,962 34,512 34,798
S&P 500 index 4,374 4,360 4,327 4,258 4,323 4,359
VIX volatility index index 16.3 17.0 18.5 22.5 19.7 17.9
AU all ords index 7,632 7,617 7,631 7,560 7,526 7,581
NZX 50 index 12,720 12,671 12,673 12,652 12,651 12,709
US interest rates              
3 month OIS % 0.10 0.10 0.10 0.10 0.10 ...
3 month Libor % 0.13 0.13 0.13 0.13 0.14 ...
10 year govt bond rate % 1.37 1.31 1.31 1.19 1.23 1.30
Commodity prices6              
WTI oil US$/barrel 73.13 71.65 71.76 66.45 67.32 70.30
Gold US$/ounce 1,823 1,823.75 1,824.30 1,814.90 1,823.05 ...
CRB Futures index 562 560.50 561.10 557.31 559.30 ...

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 27.6 18.0   ...
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 0.2   ...
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 1.9   ...
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