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Weekly economic update

Weekly Economic Update - 23 October 2020

Weekly Economic Update 23 October 2020

A new case of COVID-19 was reported in the community on Sunday, with two workplace contacts subsequently testing positive, though the risk of further community transmission is considered to be low. The NZ Activity Index indicated a recovery in September, and card spending appears to have recovered following a dip in early October. Business sentiment and activity indicators rose in the September quarter, and indexes of manufacturing and services industry performance showed signs of improvement.

China’s economy continued to recover strongly, with September quarter GDP 2.7% higher than the previous quarter, and 4.9% higher than the same quarter a year ago. This is supporting demand for dairy products, and underpinning prices, which rose for the third consecutive GlobalDairyTrade auction this week.    

COVID-19 cases found in the community

After several weeks without a case of COVID-19 outside of managed isolation facilities, a new community case was reported on Sunday (Figure 1). Genome sequencing shows that the new case is not linked to any existing local cases, and the source is expected to be an overseas ship that the man worked on in Auckland on 13 October. Close contacts of the case are self-isolating, and two workplace contacts have since tested positive.

Figure 1: Daily COVID-19 cases by source

Figure 1: Daily COVID-19 cases by source

Source: Institute of Environmental Science and Research

Activity recovers in September…

The New Zealand Activity Index (NZAC) shows a recovery in September, with activity up 1.0% on September 2019 (Figure 2). Most constituent indicators were above 2019 levels such as traffic movements, grid demand, and the performance of manufacturing index. Other indicators, such as business confidence and job advertisements, were still below last year’s levels. The number of people receiving income support (including the COVID-19 Income Relief Payment) had declined from August but was still high compared to September 2019. The NZAC value for August was revised down from -1.4% in the previous release to -1.7%.

Figure 2: New Zealand Activity Index

Figure 2: New Zealand Activity Index

Source: The Treasury, Stats NZ and RBNZ

…and card spending recovers following dip

After a dip in early October, high-frequency card spending data indicate a recovery to the previous Alert Level 1 average in both Auckland and the rest of the country (Figure 3). City centres also appear to have caught up with regional areas. In the week to 21 October, card spending in the Auckland city centre was around 1% below the previous AL1 average.

Figure 3: Card spending in city and regional areas

Figure 3: Card spending in city and regional areas

Source: Paymark and Verifone data via Data Ventures

Business sentiment bounces back…

The NZIER Quarterly Survey of Business Opinion (QSBO) showed that business sentiment and activity indicators improved in the September quarter, reflecting a combination of fiscal support, pent-up demand, strong housing and construction activity and a pick-up in domestic tourism. Firms’ reported trading activity in the September quarter was evenly split between those who experienced a rise in domestic trading activity and those who experienced a fall. This is well up on the net 37% who reported a fall in the June quarter, but remains below the recent average of the indicator. This is the indicator most closely aligned to GDP growth, and if taken at face value it would suggest September quarter activity was on a par with the same quarter a year ago (Figure 4).

Figure 4: Own activity experienced and GDP growth

Figure 4: Own activity experienced and GDP growth

Source: NZIER, Stats NZ

Firms’ expectations about their own activity over the next three months was also evenly split between those expecting a rise and those expecting a fall, and also well up on the previous quarter. NZIER report that the strong pipeline of Government construction work over the coming years is supporting a rebound in construction confidence, while services sector firms remain relatively cautious about the outlook, with a net 49% expecting worse outcomes ahead.

Sentiment on the general business outlook improved, but remains deeply pessimistic with a net 39.4% of firms expecting the outlook to deteriorate. Employment expectations were positive, with net 10% of firms expecting more hires this quarter, and firms are experiencing increased difficulty finding skilled labour. Investment confidence improved, as did profitability expectations with the latter reflecting the survey’s report that businesses are finding it easier to increase prices. This survey is consistent with other indicators, including June quarter GDP and card spending data that suggest activity in the economy is proving more resilient than expected. September quarter labour market data, scheduled for release on 4 November, will provide further insight into activity over the quarter.         

… activity indicators are back above break-even

The BNZ-BusinessNZ Performance of Manufacturing Index (PMI) rose 3.0 points in September, to 54. Production was up 4.9 points, new orders rose 3.9 points and employment was 2.4 points higher. BNZ cautioned that, although the PMI is now above its long-term average of 53, it should not be confused with above-average levels of activity, as it indicates growth off the low base set earlier in the year. The Performance of Services Index (PSI) rose 3.1 points from August to 50.3. Sales rose 7.6 points and new orders were up 6.9 points. The GDP-weighted combined index rose 3.1 points to 50.8. The pickup in the PMI and PSI is consistent with the increase in activity expected following easing of Alert Level restrictions.

Figure 5: BNZ-BusinessNZ Performance Indexes

Figure 5: BNZ-BusinessNZ Performance Indexes

Source: BNZ-BusinessNZ

Dairy prices rise at third consecutive auction

In this week’s GlobalDairyTrade auction, the index rose 0.4% in US dollar terms from the previous event. Whole milk powder prices rose 0.3% while skim milk powder prices were down 0.2%. Last week Fonterra increased their forecast milk price for the 2020/21 season, with the midpoint increasing from $6.40 to $6.80/kgMS, citing increased demand from China as a key factor holding prices up.

Growth momentum continues in China…

China’s September quarter GDP rose 2.7% from the previous quarter, to be 3.2% above pre-COVID levels, and 4.9% higher than the same quarter a year ago. This followed June’s 11.7% rise (Figure 6). In terms of the composition, consumption was the largest contributor to the year-on-year change, followed by investment and net exports. Meanwhile, monthly activity data showed solid momentum in September, which bodes well for December quarter growth; industrial production rose 0.9% in the month and retail sales rose 2.3%, while fixed asset investment was up 8.7% on a year ago.

The IMF recently upgraded its 2020 growth forecast for China by 0.9%-points to 1.9%, a little below recent consensus forecasts of 2.1%.

Figure 6: China GDP growth

Figure 6: China GDP growth

Source: Haver

…and the US

September retail sales also strengthened in the US, rising 1.9% in the month, but US industrial production declined 0.6%, to be about 6% below pre-COVID19 levels. The housing market continued to strengthen, with single-family starts rising for the fifth consecutive month to a 13-year high. However, economists continue to question the sustainability of the recovery in the absence of more fiscal support.

Monetary policy to ease in Australia…

Expectations of further monetary easing in Australia gained further traction. Reserve Bank Board minutes and a speech by Assistant Governor Kent reinforced analysts’ views that the Bank considers further policy easing is warranted and that a cut to the cash rate and the 3-year yield curve control target would be beneficial, as would buying bonds further out along the yield curve in a more conventional quantitative easing policy.

The Minutes also elaborated on the shift in the Bank’s forward guidance, with increased emphasis on unemployment as the key indicator on when rates might eventually rise. The Board also agreed to place more emphasis on actual inflation, rather than forecast inflation, in its decision making.    

There is some uncertainty in the market about when the Bank will act, although financial markets attach an 80% probability to a policy change in November.    

…as retail spending and jobs growth slow…

Preliminary retail sales fell 1.5% in September from August, but remained 4.6% higher than pre-COVID levels. Sales in the September quarter were 6.8% higher than in the June quarter. 

In the last two weeks of September, payroll jobs dropped across all states despite easing of restrictions everywhere except Victoria. It is unclear what drove the decline, some analysts attributed it to the paring back of JobKeeper, others to volatility in the data given it tends to be revised higher in time and is not seasonally adjusted.

Key NZ Data
Date Key NZ Data Previous (apc)
27 Oct Overseas Merchandise Trade - $353 million
28 Oct Employment Indicators + 0.4%
29 Oct ANZ Business Outlook - 15% (net)
30 Oct ANZ-Roy Morgan Consumer Confidence 100.0

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 (JS) and Income Support Recipients

Jobseeker (JS) and Income Support Recipients

Source: MSD

Wage Subsidy (jobs supported)

Wage Subsidy (jobs supported)

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-19 Cases

COVID-19 Cases

Sources: World Health Organisation/Haver

World Commodity Prices

World Commodity Prices

Source: ASB

Tables

Quarterly Indicators   2019Q2 2019Q3 2019Q4 2020Q1 2020Q2 2020Q3
Real Production GDP1 qpc 0.1 0.7 0.5 -1.4 -12.2 ...
  aapc 2.8 2.7 2.3 1.5 -2.0 ...
Current account balance (annual) %GDP -3.8 -3.8 -3.4 -2.9 -1.9 ...
Merchandise terms of trade apc -1.0 0.9 7.1 5.4 6.5 ...
CPI  inflation qpc 0.6 0.7 0.5 0.8 -0.5 ...
  apc 1.7 1.5 1.9 2.5 1.5 ...
Employment (HLFS)1 qpc 0.6 0.4 0.3 1.1 -0.3 ...
Unemployment rate1 % 4.0 4.2 4.1 4.2 4.0 ...
Participation rate1 % 70.5 70.7 70.4 70.7 69.9 ...
LCI salary & wage rates - total2 apc 2.1 2.5 2.6 2.5 2.1 ...
QES average hourly earnings - total2 apc 4.4 4.2 3.6 3.6 3.0 ...
Core retail sales volume apc 3.6 5.4 3.3 4.0 -11.7 ...
Total retail sales volume apc 2.9 4.5 3.3 2.3 -14.2 ...
WMM - consumer confidence3 Index 103.5 103.1 109.9 104.2 97.2 ...
QSBO - general business situation1,4 net% -30.3 -38.7 -28.7 -67.7 -58.3 -39.4
QSBO - own activity outlook1,4 net% -1.9 -0.7 3.7 -13.1 -24.6 0.4
Monthly Indicators
Monthly Indicators   Apr 20 May 20 Jun 20 Jul 20 Aug 20 Sep 20
Merchandise trade balance (12 month total) NZ$m -2,393 -1,274 -1,129 51 1,340 ...
Dwelling consents - residential apc -16.5 -4.4 20.4 -0.8 -3.6 ...
House sales - dwellings apc -77.2 -44.3 11.8 29.1 26.9 37.1
REINZ - house price index apc 8.6 7.0 7.6 9.2 9.9 11.1
Estimated net migration (12 month total) people 89,552 87,088 84,291 77,735 71,486 ...
ANZ NZ commodity price index apc 0.9 -1.3 -2.9 0.2 -3.9 -6.4
ANZ world commodity price index apc -9.2 -8.1 -5.7 -1.5 -2.8 -3.0
ANZBO - business confidence net% -66.6 -41.8 -34.4 -31.8 -41.8 -28.5
ANZBO - activity outlook net% -55.1 -38.7 -25.9 -8.9 -17.5 -5.4
ANZ-Roy Morgan - consumer confidence net% 84.8 97.3 104.5 104.3 100.2 100.0
Weekly Benefit Numbers   11 Sep 18 Sep 25 Sep 2 Oct 9 Oct 16 Oct
Jobseeker Support number 200,776 202,274 203,389 204,116 204,348 204,171
Work Ready number 130,318 131,509 132,368 132,836 132,748 132,004
Health Condition and Disability number 70,458 70,765 71,021 71,280 71,600 72,167
COVID-19 Income Relief Payment number 16,236 14,573 12,884 11,888 11,054 10,517
Full-time number 14,485 12,996 11,487 10,581 9,841 9,373
Part-time number 1,751 1,577 1,397 1,307 1,213 1,144
Daily Indicators   Wed
14/10/20
Thu
15/10/20
Fri
16/10/20
Mon
19/10/20
Tue
20/10/20
Wed
21/10/20
NZ exchange and interest rates5              
NZD/USD $ 0.6661 0.6654 0.6596 0.6627 0.6593 0.6594
NZD/AUD $ 0.9293 0.9323 0.9312 0.9328 0.9349 0.9335
Trade weighted index (TWI) index 71.8 71.7 71.2 71.4 71.1 71.0
Official cash rate (OCR) % 0.25 0.25 0.25 0.25 0.25 0.25
90 day bank bill rate % 0.27 0.27 0.28 0.28 0.27 0.27
10 year govt bond rate % 0.58 0.57 0.54 0.54 0.54 0.56
Share markets6              
Dow Jones index 28,514 28,494 28,606 28,195 28,309 28,211
S&P 500 index 3,489 3,483 3,484 3,427 3,443 3,436
VIX volatility index index 26.4 27.0 27.4 29.2 29.4 28.7
AU all ords index 6,387 6,414 6,385 6,436 6,397 6,403
NZX 50 index 12,544 12,487 12,433 12,385 12,462 12,433
US interest rates              
3 month OIS % 0.09 0.09 0.09 0.09 0.09 ...
3 month Libor % 0.23 0.22 0.22 0.21 0.22 ...
10 year govt bond rate % 0.73 0.74 0.76 0.78 0.81 0.83
Commodity prices6              
WTI oil US$/barrel 41.04 40.96 40.70 40.69 41.37 40.03
Gold US$/ounce 1,910 1,891.90 1,905.05 1,905.60 1,898.40 1,924.15
CRB Futures index 411 411.67 411.46 413.50 414.53 415.80

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
Country Indicator   2020Q1 Apr 20 May 20 Jun 20 2020Q2 Jul 20 Aug 20 Sep 20 2020Q3 Oct 20
United
States

[9.6%
share of
total goods
exports]
GDP1 qpc -1.3       -9.0       ...  
Industrial production1 mpc   -12.7 0.7 6.2   4.2 0.4 -0.6   ...
CPI apc   0.3 0.1 0.6   1.0 1.3 1.4   ...
Unemployment rate1 %   14.7 13.3 11.1   10.2 8.4 7.9   ...
Employment change1 000s   -20787.0 2725.0 4781.0   1761.0 1489.0 661.0   ...
Retail sales value apc   -19.9 -5.6 2.2   2.7 2.8 5.4   ...
House prices2 apc   3.8 3.6 3.5   3.9 ... ...   ...
PMI manufacturing1 index   41.5 43.1 52.6   54.2 56.0 55.4   ...
Consumer confidence1,3 index   85.7 85.9 98.3   91.7 86.3 101.8   ...
Japan
[6.1%]
GDP1 qpc -0.6       -7.9       ...  
Industrial production1 mpc   -9.8 -8.9 1.9   8.7 1.0 ...   ...
CPI apc   0.2 0.0 0.1   0.4 0.1 ...   ...
Unemployment rate1 %   2.6 2.9 2.8   2.9 3.0 ...   ...
Retail sales value apc   -13.9 -12.5 -1.3   -2.9 -1.9 ...   ...
PMI manufacturing1 index   41.9 38.4 40.1   45.2 47.2 47.7   ...
Consumer confidence1,4 index   21.3 24.1 28.5   29.5 29.3 32.8   ...
Euro area
[5.5%]
GDP1 qpc -3.7       -11.8       ...  
Industrial production1 mpc   -18.1 12.5 9.5   5.0 0.7 ...   ...
CPI apc   0.3 0.1 0.3   0.4 -0.2 -0.3   ...
Unemployment rate1 %   7.4 7.6 7.8   8.0 8.1 ...   ...
Retail sales volume apc   -19.3 -2.6 1.4   -0.1 3.7 ...   ...
PMI manufacturing1 index   33.4 39.4 47.4   51.8 51.7 53.7   ...
Consumer confidence5 index   -22.0 -18.8 -14.7   -15.0 -14.7 -13.9   ...
United
Kingdom

[2.7%]
GDP1 qpc -2.5       -19.8       ...  
Industrial production1 mpc   -19.5 5.6 9.9   5.2 0.3 ...   ...
CPI apc   0.8 0.6 0.6   1.1 0.2 ...   ...
Unemployment rate1 %   4.0 4.1 4.1   4.3 4.5 ...   ...
Retail sales volume apc   -22.7 -13.0 -1.6   1.4 2.8 ...   ...
House prices6 apc   3.7 1.8 -0.1   1.5 3.7 5.0   ...
PMI manufacturing1 index   32.6 40.7 50.1   53.3 55.2 54.1   ...
Consumer confidence1,5 index   -22.7 -23.7 -21.0   -16.6 -16.6 -17.9   ...
Australia
[15.8%]
GDP1 qpc -0.3       -7.0       ...  
CPI apc 2.2       -0.3       ...  
Unemployment rate1 %   6.4 7.1 7.4   7.5 6.8 6.9   ...
Retail sales value apc   -8.9 5.5 8.6   12.8 5.4 ...   ...
House Prices7 apc 8.1       6.6       ...  
PMI manufacturing1 index   35.8 41.6 51.5   53.5 49.3 46.7   ...
Consumer confidence8 index   75.6 88.1 93.7   87.9 79.5 93.8   105.0
China
[24.3%]
GDP apc -6.8       3.2       4.9  
Industrial production apc   3.9 4.4 4.8   4.8 5.6 6.9   ...
CPI apc   3.3 2.4 2.5   2.7 2.4 1.7   ...
PMI manufacturing1 index   50.8 50.6 50.9   51.1 51.0 51.5   ...
South
Korea

[3.0%]
GDP1 qpc -1.3       -3.2       ...  
Industrial production1 mpc   -6.6 -7.0 7.1   1.9 -0.7 ...   ...
CPI apc   0.1 -0.3 -0.0   0.3 0.7 1.0   ...

(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, 23 October 2020