Weekly economic update

Weekly Economic Update - 24 September 2021

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Weekly Economic Update 24 September 2021#

Economic data continues to point to activity and confidence holding up relatively well compared to the period under higher alert levels (AL) in 2020. While the recovery in spending dropped back slightly last week, the move to AL 3 in Auckland will support activity ahead. Resilient consumer confidence is expected to support demand as restrictions ease, and sustained inflationary pressures raises expectations of tighter monetary policy. The possible default of Chinese property developer Evergrande remains a concern for financial markets. A default could lead to a slowdown in the Chinese economy and weaken demand for our exports.

Recovery in card spending has abated…#

Card spending in most regions outside Auckland in the week ended 20 September fell after an initial bounce back but remains above the levels seen in 2019. Total spending is expected to continue rising with Auckland moving to AL 3. However, in-person spending has not recovered to the same extent as the 2020 post-lockdown period, which likely reflects AL 3 in Auckland and a rise in online shopping

…but consumer confidence has been resilient#

Consumer confidence in the Westpac McDermott Miller Consumer Confidence Survey fell 4.4 points in September to 102.7, much less than the fall seen during the 2020 lockdown (Figure 1). Supply chain disruptions and rising shipping costs appear to be weighing on consumers’ spending by limiting the availability of goods and raising prices. While Auckland moving down alert levels is positive, global shipping is likely to remain disrupted for some time.

Figure 1: Consumer confidence

Figure 1: Consumer confidence

Source: Westpac, ANZ

Monetary policy is expected to tighten…#

The evidence is becoming ever clearer that the economy was in a robust state prior to the Delta outbreak and has been resilient to the lockdown. There is also increasing evidence of inflationary pressure. Consequently, it seems increasingly likely that the Reserve Bank will lift interest rates. The Reserve Bank itself this week indicated that monetary policy would be tightened in small increments, rather than sharply.

The RBNZ has also announced that loan to value ratio (LVR) restrictions will tighten from 1 November 2021, limiting the amount of lending banks can do above an LVR of 80 percent to 10 percent of all new loans to owner-occupiers.

…after activity falls in the September quarter…#

Both the BNZ-BusinessNZ Performance of Manufacturing and Services Indexes fell in August as a result of the nationwide lockdown and are now in contractionary territory. The Combined Index (PCI) fell to 36.2, a 20.8-point drop from July, suggesting a sharp decline in GDP in the September quarter (Figure 2).

Figure 2: GDP and PCI

Figure 2: GDP and PCI

Sources: Stats NZ, BNZ-BusinessNZ

…and Fonterra confirms pay-out for the year#

Fonterra confirmed a $7.74 per kgMS payout (including dividend) for the 2020/21 year. While dairy prices have been easing since their peak in March 2021, they remain at elevated levels which will be providing a boost to export values and the New Zealand dairy industry. Dairy prices rose 1.0% at the latest GlobalDairyTrade auction.

Concerns about Evergrande cause jitters…#

It has been a volatile week in global financial markets, mostly due to concerns about the possible default of Chinese property developer Evergrande. Since there are no derivative instruments built on Evergrande’s debt of more than NZD400 billion, analysts expect contagion to the rest of the financial system to be limited. However, a negative impact on the property sector is likely to result in a slowdown in China’s economic growth, which could affect the demand for New Zealand’s exports. After deteriorating early in the week, risk appetite improved on Thursday as Evergrande announced that it had reached an agreement on an upcoming coupon payment. Further helping sentiment was a large liquidity injection by the Chinese central bank. However, there is still a lot of uncertainty about Evergrande’s restructure, to what extent the Chinese government will intervene, and the degree of wider contagion in the region.

…as activity growth slackens#

Purchasing Managers’ Index (PMI) data released for September confirmed that the global economic recovery is slowing. The PMI for the euro area, whilst still firmly in expansionary territory (above 50), declined to a five-month low (Figure 3). The measure for input prices reached a 21-year high, reflecting ongoing supply chain disruptions and shortages of materials. In the US, the composite PMI also declined, reaching a 12-month low. In addition to supply chain disruption, the decline reflected a slowdown in demand related to the Delta outbreak, while labour shortages continue to be an issue. Overall, with demand continuing to outpace supply, price pressures remain elevated.

Figure 3: Composite PMIs in selected countries

Figure 3: Composite PMIs in selected countries

Source: Haver

…and global central banks hold steady#

Inflation rates are rising around the world and economic growth has slowed in many jurisdictions due to the Delta outbreak. However, the Federal Reserve expects US GDP growth will remain robust through 2022-24. Nevertheless, most central banks are only inching slowly toward tighter monetary policy. This week Norway became only the second developed economy after South Korea to raise its policy interest rate.

This week’s United States Federal Open Market Committee (FOMC) statement was largely in line with market expectations, noting that if progress towards its policy goals continues as expected, asset purchase tapering ‘may soon be warranted’. This means the FOMC will continue purchasing government bonds, but at a slower pace, with the slowdown expected to commence in either November or December. Some FOMC members brought forward their expectations of interest rate hikes, with nine out of 18 now judging an increase in 2022 to be appropriate, up from seven previously.

Shadow interest rates, which indicate the overall stance of monetary policy including asset purchases, remain firmly in negative territory, but have started increasing, notably in New Zealand (Figure 4).

Figure 4: Shadow interest rates

Figure 4: Shadow interest rates

Source: Haver

Date Key upcoming NZ data Previous
30 September Building consents +2.1% (mpc)
1 October ANZ Consumer Confidence 109.6 (index)

High-Frequency Indicators[1]#

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 Per Million People#

COVID-19 Cases Per Million People

Source: World Health Organisation/Haver

World Commodity Prices#

World Commodity Prices

Source: ASB

Notes#

  1. [1] Additional high frequency indicators are available on the Stats NZ COVID-19 data portal: https://www.stats.govt.nz/experimental/covid-19-data-portal

Tables#

Quarterly Indicators   2020Q1 2020Q2 2020Q3 2020Q4 2021Q1 2021Q2
Real Production GDP1 qpc -1.4 -9.9 13.9 -1.0 1.4 2.8
  aapc 1.7 -1.3 -1.6 -2.1 -1.4 5.1
Current account balance (annual) %GDP -2.4 -1.5 -0.7 -0.8 -2.5 -3.3
Merchandise terms of trade apc 5.4 6.3 -0.3 -1.6 -0.9 0.0
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 -0.4 -0.6 0.7 0.6 1.1
Unemployment rate1 % 4.2 4.1 5.3 4.8 4.6 4.0
Participation rate1 % 70.7 69.9 70.1 70.2 70.4 70.5
LCI salary & wage rates - total2 apc 2.5 2.1 1.8 1.6 1.6 2.1
QES average hourly earnings - total2 apc 3.7 3.0 4.2 4.3 4.0 4.0
Core retail sales volume apc 4.0 -11.7 7.6 4.4 5.4 30.2
Total retail sales volume apc 2.3 -14.2 8.1 4.7 6.6 33.3
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   Apr 21 May 21 Jun 21 Jul 21 Aug 21 Sep 21
Merchandise trade balance (12 month total) NZ$m 748 -49 -277 -1,099 -2,944 ...
Dwelling consents - residential apc 83.7 17.3 24.0 24.2 ... ...
House sales - dwellings apc 439.7 86.4 10.4 -9.7 -26.5 ...
REINZ - house price index apc 26.8 29.7 30.0 30.6 31.2 ...
Estimated net migration (12 month total) people 3,112 3,209 3,344 4,407 ... ...
ANZ NZ commodity price index apc 6.8 7.9 17.5 16.9 15.4 ...
ANZ world commodity price index apc 24.2 25.2 28.0 22.2 21.5 ...
ANZBO - business confidence net% -2.0 1.8 -0.6 -3.8 -14.2 -6.8
ANZBO - activity outlook net% 22.2 27.1 31.6 26.3 19.2 18.2
ANZ-Roy Morgan - consumer confidence net% 115.4 114.0 114.1 113.1 109.6 ...
Weekly Benefit Numbers   13 Aug 20 Aug 27 Aug 3 Sep 10 Sep 17 Sep
Jobseeker Support number 186,840 188,865 192,393 194,280 194,898 194,907
Work Ready number 106,734 108,231 111,213 112,749 113,316 113,322
Health Condition and Disability number 80,106 80,634 81,180 81,528 81,579 81,588
COVID-19 Income Relief Payment number ... ... ... ... ... ...
Full-time number ... ... ... ... ... ...
Part-time number ... ... ... ... ... ...
Daily Indicators   Thu
16/9/21
Fri
17/9/21
Mon
20/9/21
Tue
21/9/21
Wed
22/9/21
Thu
23/9/21
NZ exchange and interest rates5              
NZD/USD $ 0.7125 0.7062 0.7030 0.7022 0.7023 0.6998
NZD/AUD $ 0.9714 0.9697 0.9705 0.9665 0.9683 0.9667
Trade weighted index (TWI) index 75.5 75.2 74.9 74.8 74.9 74.7
Official cash rate (OCR) % 0.25 0.25 0.25 0.25 0.25 0.25
90 day bank bill rate % 0.61 0.68 0.67 0.61 0.62 0.61
10 year govt bond rate % 1.80 1.86 1.87 1.84 1.86 1.86
Share markets6              
Dow Jones index 34,751 34,585 33,970 33,920 34,258 34,765
S&P 500 index 4,474 4,433 4,358 4,354 4,396 4,449
VIX volatility index index 18.7 20.8 25.7 24.4 20.9 18.6
AU all ords index 7,760 7,703 7,538 7,563 7,594 7,681
NZX 50 index 13,080 13,235 13,179 13,177 13,216 13,306
US interest rates              
3 month OIS % 0.08 0.08 0.08 0.08 0.08 ...
3 month Libor % 0.12 0.12 0.13 0.13 0.13 ...
10 year govt bond rate % 1.34 1.37 1.31 1.33 1.32 1.41
Commodity prices6              
WTI oil US$/barrel 72.61 72.09 70.41 70.51 72.23 73.30
Gold US$/ounce 1,748 1,755.95 1,757.75 1,774.45 1,773.40 1,750.00
CRB Futures index 556 555.50 550.58 547.07 549.61 ...

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   Feb 21 Mar 21 2021Q1 Apr 21 May 21 Jun 21 2021Q2 Jul 21 Aug 21 Sep 21
United
States

[11%
share of
total goods
exports]
GDP1 qpc     1.5       1.6      
Industrial production1 mpc -3.0 2.9   0.1 0.6 0.5   0.8 0.4 ...
CPI apc 1.7 2.6   4.2 5.0 5.4   5.4 5.3 ...
Unemployment rate1 % 6.2 6.0   6.1 5.8 5.9   5.4 5.2 ...
Employment change1 000s 536.0 785.0   269.0 614.0 962.0   1053.0 235.0 ...
Retail sales value apc 6.5 29.7   53.4 28.0 18.9   15.1 15.1 ...
House prices2 apc 12.1 13.5   15.1 17.1 19.1   ... ... ...
PMI manufacturing1 index 60.8 64.7   60.7 61.2 60.6   59.5 59.9 ...
Consumer confidence1,3 index 95.2 114.9   117.5 120.0 128.9   125.1 113.8 ...
Japan
[6.0%]
GDP1 qpc     -1.1       0.5      
Industrial production1 mpc -1.3 1.7   2.9 -6.5 6.5   -1.5 ... ...
CPI apc -0.5 -0.4   -1.1 -0.7 -0.4   -0.3 ... ...
Unemployment rate1 % 2.9 2.6   2.8 3.0 2.9   2.8 ... ...
Retail sales value apc 3.7 5.2   11.9 8.3 0.1   2.4 ... ...
PMI manufacturing1 index 51.4 52.7   53.6 53.0 52.4   53.0 52.7 ...
Consumer confidence1,4 index 33.7 36.1   34.8 34.2 37.6   37.5 36.6 ...
Euro area
[6.5%]
GDP1 qpc     -0.3       2.2      
Industrial production1 mpc -1.2 0.7   0.7 -1.1 -0.1   1.5 ... ...
CPI apc 0.9 1.3   1.6 2.0 1.9   2.2 ... ...
Unemployment rate1 % 8.1 8.1   8.2 8.0 7.8   7.6 ... ...
Retail sales volume apc -1.3 13.8   23.6 8.6 5.4   3.1 ... ...
PMI manufacturing1 index 57.9 62.5   62.9 63.1 63.4   62.8 61.4 ...
Consumer confidence5 index -14.8 -10.8   -8.1 -5.1 -3.3   -4.4 -5.3 ...
United
Kingdom

[2.0%]
GDP1 qpc     -1.6       4.8      
Industrial production1 mpc 0.5 1.5   -0.8 0.6 -0.7   1.2 ... ...
CPI apc 0.7 1.0   1.6 2.1 2.4   2.1 3.0 ...
Unemployment rate1 % 5.0 4.9   4.8 4.8 4.7   4.6 ... ...
Retail sales volume apc -3.6 6.9   42.1 24.1 9.1   2.4 ... ...
House prices6 apc 6.9 5.7   7.1 10.9 13.4   10.5 11.0 ...
PMI manufacturing1 index 55.1 58.9   60.9 65.6 63.9   60.4 60.3 ...
Consumer confidence1,5 index -23.0 -16.0   -15.0 -9.0 -9.0   -7.0 -8.0 ...
Australia
[13.0%]
GDP1 qpc     1.9       0.7      
CPI apc     1.1       3.8      
Unemployment rate1 % 5.9 5.7   5.5 5.1 4.9   4.6 4.5 ...
Retail sales value apc 5.2 3.9   23.8 7.1 2.9   -2.9 ... ...
House Prices7 apc     8.9       19.8      
PMI manufacturing1 index 58.8 59.9   61.7 61.8 63.2   60.8 51.6 ...
Consumer confidence8 index 109.1 111.8   118.8 113.1 107.2   108.8 104.1 106.2
China
[31.0%]
GDP apc     18.3       7.9      
Industrial production apc 35.1 14.1   9.8 8.8 8.3   6.4 5.3 ...
CPI apc -0.2 0.4   0.9 1.3 1.1   1.0 0.8 ...
PMI manufacturing1 index 50.6 51.9   51.1 51.0 50.9   50.4 50.1 ...
South
Korea

[3.0%]
GDP1 qpc     1.7       0.8      
Industrial production1 mpc 4.2 -0.7   -1.9 -1.3 2.3   0.4 ... ...
CPI apc 1.1 1.5   2.3 2.6 2.4   2.6 2.6 ...

(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