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Weekly economic update

Weekly Economic Update - 26 November 2021

Weekly Economic Update 26 November 2021

As expected, retail trade was significantly impacted by COVID-19 restrictions in the September quarter. However, economic activity has been recovering and overall demand has remained resilient, contributing to the Reserve Bank’s decision to raise the Official Cash Rate (OCR) with further increases expected ahead. As interest rates rise, inflationary pressures are expected to ease as household spending turns towards servicing household debt.  

Retail trade fell with restrictions…

Retail sales volumes fell 8.1% in the September quarter, owing to the effect of the Delta outbreak and associated restrictions. Reflecting previous data releases, Auckland has been the most significantly affected region and hospitality the most impacted industry. Despite this fall, the rebound seen in the weekly electronic card spending data since late September is expected to continue as restrictions ease, supporting household consumption and the economic recovery in the December 2021 quarter.

Figure 1: Retail trade and consumption

Figure 1: Retail trade and consumption

Source: Stats NZ

…but domestic demand supported goods trade…

Despite global supply chain disruption, strong demand both overseas and domestically is supporting New Zealand’s goods trade which is now roughly in line with the pre-pandemic trend. Goods import values continued to surge in October, breaking the previous record for an October month by $500 million. Goods exports recovered as restrictions eased, and global commodity prices remain supportive.

…contributing to an OCR increase…

The Reserve Bank increased the OCR by 0.25 percentage points to 0.75% in the November Monetary Policy Statement (MPS) with annual headline Consumer Price Index (CPI) inflation at 4.9% and unemployment at 3.4%. In line with survey-measures of inflation expectations, the Reserve Bank expects annual CPI inflation to be above their target band in the near before returning towards the 2% midpoint target over the next two years.

The Reserve Bank expects to gradually remove monetary policy stimulus further over time given the medium-term outlook for inflation and employment. The MPS shows the OCR increasing to 2.6% by September 2024, about 0.5 percentage points higher than expected at the August MPS.

…which will dampen household spending

Household debt increased significantly over the past year and a half, reaching 169% of disposable income at the end of the June 2021 quarter. Most of this is in housing, with housing lending growth reaching a peak in July and remaining elevated at 11.6% in September 2021.

With elevated debt and mortgage lending concentrated in shorter terms, rising interest rates will likely have a significant impact on highly indebted households (Figure 2). With more income turning towards servicing debt, reduced spending will lower aggregate demand.

Figure 2: Residential mortgages by time until next repricing

Figure 2: Residential mortgages by time until next repricing

Source: Reserve Bank of New Zealand

Growth in advanced economies seems to be picking up in November, though rising COVID-19 cases in Europe pose a threat to the recovery. Supply chain disruption continues to drive inflation higher, and the stage appears set for a faster tightening in monetary policy in the US.

Global growth strengthens in November…

Purchasing Managers Indexes (PMI) for November indicate a strengthening recovery in advanced economies, with most composite output indexes lifting further into expansionary territory (Figure 3). Supply chain issues featured strongly in the surveys as delivery times lengthened and shortages were reported. This flowed through into rising price pressures, with growth in input costs near or exceeding record highs, suggesting that high inflation is unlikely to abate in the near term.

Figure 3: Composite output PMI

Figure 3: Composite output PMI

Source: Haver

Australia’s PMI lifted further into expansionary territory, led by the services index as easing restrictions allowed in-person activities to resume. Japan’s PMI experienced a similar recovery, with rising vaccination rates and easing activity restrictions boosting business confidence. Growth slowed in the US, reflecting ongoing supply constraints, though the PMI remained firmly expansionary and above the long-run average.

Growth unexpectedly picked up in the euro area, though rising COVID-19 cases and weakening business confidence suggest that the improved performance may be short-lived. The UK PMI rose to the top of the pack for the first time this year, with strong employment growth combined with record inflationary pressures suggesting that a tightening in monetary policy may come soon.

…as US Fed eyes faster tightening in policy…

Minutes of the US central bank’s November policy meeting show that a growing proportion of members are open to a faster reduction in monetary stimulus if high inflation persists. The data since the meeting in early November suggest that these conditions may have been met. US consumer prices as measured by the Personal Consumption Expenditure deflator rose by 5.0% on an annual basis in October, the highest in nearly 40 years. Price inflation for goods was even stronger at 7.5%, with lower services price inflation pulling down the headline number. Consequently, financial markets now pricing in an interest rate increase by the middle of next year.

…but COVID-19 spread in Europe is a threat

Daily COVID-19 cases in Germany, Austria and the Netherlands have risen well above previous records, and although deaths have remained much lower than previous waves, these are also on the rise (Figure 4). This has resulted in new restrictions, and in some cases these have been met with violent protest. Consumer confidence in the euro area fell to its lowest level in 7 months, indicating future weakness in household demand.

Figure 4: Daily new COVID-19 cases and deaths

Figure 4: Daily new COVID-19 cases and deaths

Source: Our World in Data

Date Key upcoming NZ data Previous
30 November ANZ Business Confidence -13.4 (index)
1 December New dwelling consents -1.9 (mpc)
2 December Terms of trade +3.3 (qpc)

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   2020Q2 2020Q3 2020Q4 2021Q1 2021Q2 2021Q3
Real Production GDP1 qpc -9.9 13.9 -1.0 1.4 2.8 ...
  aapc -1.3 -1.6 -2.1 -1.4 5.1 ...
Current account balance (annual) %GDP -1.5 -0.7 -0.8 -2.5 -3.3 ...
Merchandise terms of trade apc 6.3 -0.3 -1.6 -0.9 0.0 ...
CPI  inflation qpc -0.5 0.7 0.5 0.8 1.3 2.2
  apc 1.5 1.4 1.4 1.5 3.3 4.9
Employment (HLFS)1 qpc -0.4 -0.7 0.7 0.5 1.0 2.0
Unemployment rate1 % 4.1 5.3 4.8 4.6 4.0 3.4
Participation rate1 % 69.9 70.1 70.2 70.4 70.5 71.2
LCI salary & wage rates - total2 apc 2.1 1.8 1.6 1.6 2.1 2.4
QES average hourly earnings - total2 apc 3.0 4.2 4.3 4.0 4.0 3.5
Core retail sales volume apc -11.7 7.6 4.4 5.4 30.2 -3.2
Total retail sales volume apc -14.2 8.1 4.7 6.6 33.3 -5.2
WMM - consumer confidence3 Index 97.2 95.1 106.0 105.2 107.1 102.7
QSBO - general business situation1,4 net% -61.2 -36.7 -15.0 -8.2 8.6 -8.4
QSBO - own activity outlook1,4 net% -25.0 1.1 9.5 7.5 27.1 9.3
Monthly Indicators   Jun 21 Jul 21 Aug 21 Sep 21 Oct 21 Nov 21
Merchandise trade balance (12 month total) NZ$m -276.6 -1088.4 -2922.3 -4105.2 -4920.3 ...
Dwelling consents - residential apc 24.0 24.2 42.3 24.4 ... ...
House sales - dwellings apc 10.4 -9.1 -23.6 -36.4 -21.7 ...
REINZ - house price index apc 29.9 30.4 30.7 30.0 29.9 ...
Estimated net migration (12 month total) people 991.0 1,810.0 731.0 796.0 ... ...
ANZ NZ commodity price index apc 17.5 16.9 15.4 17.4 16.4 ...
ANZ world commodity price index apc 28.0 22.2 21.5 23.6 23.7 ...
ANZBO - business confidence net% -0.6 -3.8 -14.2 -7.2 -13.4 -18.1
ANZBO - activity outlook net% 31.6 26.3 19.2 18.2 21.7 15.6
ANZ-Roy Morgan - consumer confidence net% 114.1 113.1 109.6 104.5 98.0 ...
Weekly Benefit Numbers   15 Oct 22 Oct 29 Oct 5 Nov 12 Nov 19 Nov
Jobseeker Support number 191,904 190,731 189,855 189,309 183,165 182,583
Work Ready number 110,280 109,236 108,471 107,844 102,924 102,261
Health Condition and Disability number 81,627 81,495 81,384 81,465 80,241 80,325
COVID-19 Income Relief Payment number 3,304 3,507 3,720 3,956 4,172 4,321
Full-time number 1,270,581 1,276,863 1,282,152 1,290,603 1,296,192 1,300,179
Part-time number 326,067 328,455 329,961 331,665 332,970 334,104
Daily Indicators   Thu
18/11/21
Fri
19/11/10
Mon
22/11/21
Tue
23/11/21
Wed
24/11/21
Thu
25/11/21
NZ exchange and interest rates5              
NZD/USD $ 0.7005 0.7036 0.6990 0.6951 0.6934 0.6888
NZD/AUD $ 0.9650 0.9672 0.9664 0.9617 0.9602 0.9559
Trade weighted index (TWI) index 74.9 75.2 74.9 74.6 74.5 74.0
Official cash rate (OCR) % 0.50 0.50 0.50 0.50 0.75 0.75
90 day bank bill rate % 0.87 0.87 0.87 0.87 0.87 0.80
10 year govt bond rate % 2.65 2.62 2.60 2.62 2.61 2.57
Share markets6              
Dow Jones index 35,871 35,602 35,619 35,814 35,804 ...
S&P 500 index 4,705 4,698 4,683 4,691 4,701 ...
VIX volatility index index 17.6 17.9 19.2 19.4 18.6 ...
AU all ords index 7,713 7,730 7,688 7,742 7,726 7,737
NZX 50 index 12,800 12,740 12,608 12,689 12,767 12,795
US interest rates              
3 month OIS % 0.08 0.08 0.08 0.08 ... ...
3 month Libor % 0.16 0.16 0.17 0.18 0.18 ...
10 year govt bond rate % 1.59 1.54 1.63 1.67 1.64 ...
Commodity prices6              
WTI oil US$/barrel 79.01 76.11 76.74 78.32 78.39 ...
Gold US$/ounce 1,860.30 1,861.10 1,816.05 1,789.15 1,782.05 ...
CRB Futures index 569.04 569.07 569.79 572.05 572.28 ...

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   Apr 21 May 21 Jun 21 2021Q2 Jul 21 Aug 21 Sep 21 2021Q3 Oct 21 Nov 21
United
States

[10.6%
share of
total goods
exports]
GDP1 qpc       1.6       0.5    
Industrial production1 mpc 0.1 0.7 0.5   0.8 0.0 -1.3   1.6 ...
CPI apc 4.2 5.0 5.4   5.4 5.3 5.4   6.2 ...
Unemployment rate1 % 6.1 5.8 5.9   5.4 5.2 4.8   4.6 ...
Employment change1 000s 269.0 614.0 962.0   1091.0 483.0 312.0   531.0 ...
Retail sales value apc 53.4 28.0 18.9   15.3 15.7 14.3   16.3 ...
House prices2 apc 15.2 17.3 19.2   20.0 19.7 ...   ... ...
PMI manufacturing1 index 60.7 61.2 60.6   59.5 59.9 61.1   60.8 ...
Consumer confidence1,3 index 117.5 120.0 128.9   125.1 115.2 109.8   113.8 ...
Japan
[5.6%]
GDP1 qpc       0.4       -0.8    
Industrial production1 mpc 2.9 -6.5 6.5   -1.5 -3.6 -5.4   ... ...
CPI apc -1.1 -0.7 -0.4   -0.3 -0.4 0.2   0.1 ...
Unemployment rate1 % 2.8 3.0 2.9   2.8 2.8 2.8   ... ...
Retail sales value apc 11.9 8.3 0.1   2.4 -3.2 -0.5   ... ...
PMI manufacturing1 index 53.6 53.0 52.4   53.0 52.7 51.5   53.2 ...
Consumer confidence1,4 index 34.8 34.2 37.6   37.5 36.6 38.0   39.2 ...
Euro area
[6.5%]
GDP1 qpc       2.1       2.2    
Industrial production1 mpc 0.7 -1.2 0.3   1.3 -1.7 -0.2   ... ...
CPI apc 1.6 2.0 1.9   2.2 3.0 3.4   4.1 ...
Unemployment rate1 % 8.1 8.0 7.8   7.6 7.5 7.4   ... ...
Retail sales volume apc 23.7 8.7 5.6   3.3 1.5 2.5   ... ...
PMI manufacturing1 index 62.9 63.1 63.4   62.8 61.4 58.6   58.3 ...
Consumer confidence5 index -8.1 -5.1 -3.3   -4.4 -5.3 -4.0   -4.8 -6.8
United
Kingdom

[2.3%]
GDP1 qpc       5.5       1.3    
Industrial production1 mpc -0.4 0.9 -0.6   0.3 1.0 -0.4   ... ...
CPI apc 1.6 2.1 2.4   2.1 3.0 2.9   3.8 ...
Unemployment rate1 % 4.8 4.8 4.7   4.6 4.5 4.3   ... ...
Retail sales volume apc 42.1 24.4 8.8   1.9 0.4 -0.7   -1.3 ...
House prices6 apc 7.1 10.9 13.4   10.5 11.0 10.0   9.9 ...
PMI manufacturing1 index 60.9 65.6 63.9   60.4 60.3 57.1   57.8 ...
Consumer confidence1,5 index -15.0 -9.0 -9.0   -7.0 -8.0 -13.0   -17.0 -14.0
Australia
[13.0%]
GDP1 qpc       0.7       ...    
CPI apc       3.8       3.0    
Unemployment rate1 % 5.5 5.1 4.9   4.6 4.5 4.6   5.2 ...
Retail sales value apc 23.8 7.1 2.9   -2.9 -0.7 1.9   ... ...
House Prices7 apc       19.8       ...    
PMI manufacturing1 index 61.7 61.8 63.2   60.8 51.6 51.2   50.4 ...
Consumer confidence8 index 118.8 113.1 107.2   108.8 104.1 106.2   104.6 105.3
China
[31.5%]
GDP apc       7.9       4.9    
Industrial production apc 9.8 8.8 8.3   6.4 5.3 3.1   3.5 ...
CPI apc 0.9 1.3 1.1   1.0 0.8 0.7   1.5 ...
PMI manufacturing1 index 51.1 51.0 50.9   50.4 50.1 49.6   49.2 ...
South
Korea

[2.9%]
GDP1 qpc       0.8       0.3    
Industrial production1 mpc -1.9 -1.3 2.3   0.2 -0.7 -0.8   ... ...
CPI apc 2.3 2.6 2.4   2.6 2.6 2.5   3.2 ...

(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: 
Tuesday, 30 November 2021