Weekly economic update

Weekly Economic Update - 29 January 2021

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Weekly Economic Update - 29 January 2021#

New COVID cases in the community#

Three cases of COVID-19 have been recorded in the community over the past week, all of which originated from the same MIQ facility in Auckland. Contact tracing is well underway, and the MIQ facility has been placed into temporary lockdown.

Business sentiment continues to improve…#

The December quarter release of the NZIER's Quarterly Survey of Business Opinion (QSBO) showed improving business sentiment. A net 9% of firms now think their trading activity for the next 3 months will be higher, compared to 0.5% in the September quarter (Figure 1).

Figure 1: GDP and domestic trading activity

Figure 1: GDP and domestic trading activity

Figure 1: GDP and domestic trading activity

Sources: NZIER, Stats NZ

A net 16% of firms were pessimistic about the general business situation in the December quarter, up from a net 38% in the September quarter and 58% in the June quarter. Conditions remain challenging for some firms, particularly those in the services and retail areas. Capacity and cost pressures remain key concerns and firms are cautious about hiring, with a net 8% of firms reducing their headcount in the December quarter. Investment intentions are now positive but remain weak.

…and inflation exceeds expectations#

High demand for domestic tourism, vehicles, furniture and electronics, combined with supply chain disruptions and less discounting activity provided a stronger inflationary environment than expected in the December quarter. Consumer prices rose 0.5% in the quarter, driven by broad-based increases in both the tradables and non-tradables groups. Annual inflation remained at 1.4%, unchanged from the September quarter.

The stronger-than-expected outturn for inflation adds to recent data suggesting the economy was more resilient than expected in our HYEFU forecast. However, we expect inflationary pressures to ease as the effects of the pandemic and response continue to flow through the economy, although supply-side disruptions may provide support for prices in the near term.

Manufacturing activity contracts in December…#

The BNZ-BusinessNZ Performance of Manufacturing Index (PMI) returned to contractionary territory in December, down 6 points to 48.7. Production fell by 3.5 points but remained in expansionary territory while new orders, employment, finished goods and deliveries all fell into contractionary territory.

…but services activity improves#

The Performance of Services Index (PSI) picked up, rising 2.5 points to 49.2, but remains contractionary. Sales rose 5.6 points to 51.3 and employment rose to 51.7, its best reading since January 2020, but new orders fell by 1.3 points and supplier deliveries remained weak at 39.5, possibly driven by supply-side problems. The positive services result helped drive the GDP Weighted Combined Index (PCI) up 1.5 points to 49.2.

Fall in dairy exports#

In the month of December, New Zealand's exports fell 2.5% (in seasonally adjusted terms), with exports of dairy products 19% lower than the same month last year, driven by a drop in sales to China. This is the first time in six years that there has been a fall in dairy product exports to China in a December month. The drop in dairy exports was partly offset by a rise in exports of respiratory equipment. Total imports rose 7.9% in December, led by imports of passenger cars. The resulting seasonally adjusted monthly trade balance in December 2020 was a deficit of $107 million.

Vaccine success improves world outlook#

The global economic contraction over 2020 was revised down by 0.9 percentage points (ppts) to 3.5% in the IMF's January World Economic Outlook. Growth in 2021 was upgraded by 0.3 ppts to 5.5%, driven by hopes of a vaccine-powered recovery and increased fiscal stimulus in the US and Japan. Renewed waves of infection and new virus strains pose significant risks, however.

UK PMI plunges in January…#

The UK Purchasing Managers' Index (PMI) came in much weaker than expected, reflecting the impact of January's renewed lockdown. The manufacturing PMI fell 4.6 points (pts) to 52.9, while the services PMI plummeted nearly 11 pts to 38.8. This dragged the composite index down to 40.6, the weakest level since May 2020 (Figure 2).

Figure 2: Composite Output PMI

Figure 2: Composite Output PMI

Figure 2: Composite Output PMI

Source: IHS Markit/Haver Analytics

…and unemployment rises#

The UK unemployment rate in the three months to November 2020 was 5.0%, an increase of 0.6 ppts from the previous quarter. Employment fell by 0.3% in the quarter, though hours worked increased by 10.0%. This result was better than the Bank of England's November forecast, though further near-term weakness is expected.

European PMI eases as France lockdown looms#

The euro area PMI fell to 47.5 in January (Figure 2), with the services index dropping 2.3 pts while the manufacturing index fell by 0.8 pts. Meanwhile, vaccine supply delays are casting doubt on whether the European Union's target of vaccinating 70% of adults by the summer will be achieved, and calls are growing for a third lockdown in France as COVID-19 cases surge and hospitalisations rise.

US PMI and consumer confidence rise…#

PMI results out of the US were more positive, with the manufacturing index rising to a record 59.1 and the services index rising to 0.9 pts shy of its record level in November. The composite index reached 58.0, 0.6 pts off the record level reached in November. Consumer confidence rose 2.2 pts after dropping nearly 15 pts from October to December (Figure 3). The details were mixed, with the expectations index at its highest since October, but the present situation index at its lowest since May.

Figure 3: US consumer confidence

Figure 3: US consumer confidence

Figure 3: US consumer confidence

Source: The Conference Board/Haver Analytics

…and the Fed holds policy unchanged#

The US Federal Reserve Board agreed to hold its policy rate unchanged, citing softening business activity amid the virus resurgence. Democrats announced plans to bring a stimulus vote as early as next week, which would likely include the stimulus payments and increased jobless benefits in President Biden's $1.9 trillion proposal.

Australian inflation, business conditions rise#

The Australian Consumer Price Index rose 0.9% in the December quarter, exceeding expectations and taking annual inflation up to 0.9%. The December NAB Business Survey saw business confidence fall 9 pts, likely influenced by the Sydney COVID-19 outbreak. The business conditions index was more positive, rising 7 pts to its highest level since 2018. Employment conditions rose sharply, entering positive territory for the first time since the start of the pandemic, underscoring December's 0.4% rise in employment and 0.2 ppt fall in the unemployment rate to 6.6%.

 

Date Key upcoming NZ data Previous
3 Feb Unemployment rate 5.3%
4 Feb ANZ Business Outlook +9.4% (net)

High-Frequency Indicators (Domestic)#

Traffic Movement#

Traffic Movement

Traffic Movement

Source: Waka Kotahi NZ Transport Agency

Freight Movement#

Freight Movement

Freight Movement

Source: Waka Kotahi NZ Transport Agency

Electricity Demand#

Electricity Demand, Annual Change

Electricity Demand, Annual Change

Source: Electricity Authority

Retail Spending#

Retail Spending

Retail Spending

Source: Marketview data via MBIE

Jobseeker (JS) and Income Support Recipients#

Jobseeker (JS) and Income Support Recipients

Jobseeker (JS) and Income Support Recipients

Source: MSD

People Movements at Selected Locations#

People Movements at Selected Locations

People Movements at Selected Locations

Source: Google

High-Frequency Indicators (Global)#

Trade Weighted Index#

Trade Weighted Index (17 Country)

Trade Weighted Index (17 Country)

Source: RBNZ

Volatility Index#

Volatility Index

Volatility Index

Source: Haver

US Activity and Equities#

US Activity and Equities

US Activity and Equities

Sources: Federal Reserve Bank of New York, Haver

Labour Markets#

Labour Markets

Labour Markets

Source: Haver

COVID-19 Cases#

COVID-19 Cases

COVID-19 Cases

Sources: World Health Organisation/Haver

World Commodity Prices#

World Commodity Prices

World Commodity Prices

Source: ASB

Tables#

Quarterly Indicators   2019Q3 2019Q4 2020Q1 2020Q2 2020Q3 2020Q4
Real Production GDP1 qpc 0.7 0.1 -1.2 -11.0 14.0 ...
  aapc 2.8 2.3 1.6 -1.7 -2.2 ...
Current account balance (annual) %GDP -3.7 -3.3 -2.8 -1.8 -0.8 ...
Merchandise terms of trade apc 0.9 7.1 5.4 6.3 -0.4 ...
CPI  inflation qpc 0.7 0.5 0.8 -0.5 0.7 0.5
  apc 1.5 1.9 2.5 1.5 1.4 1.4
Employment (HLFS)1 qpc 0.4 0.3 1.1 -0.3 -0.8 ...
Unemployment rate1 % 4.2 4.1 4.2 4.0 5.3 ...
Participation rate1 % 70.7 70.4 70.7 69.9 70.1 ...
LCI salary & wage rates - total2 apc 2.5 2.6 2.5 2.1 1.8 ...
QES average hourly earnings - total2 apc 4.2 3.6 3.6 3.0 3.6 ...
Core retail sales volume apc 5.4 3.3 4.0 -11.7 7.7 ...
Total retail sales volume apc 4.5 3.3 2.3 -14.2 8.3 ...
WMM - consumer confidence3 Index 103.1 109.9 104.2 97.2 95.1 106.0
QSBO - general business situation1,4 net% -37.1 -30.8 -67.9 -57.6 -37.6 -16.3
QSBO - own activity outlook1,4 net% -0.6 2.9 -12.9 -24.1 0.5 9.4
Monthly Indicators   Jul 20 Aug 20 Sep 20 Oct 20 Nov 20 Dec 20
Merchandise trade balance (12 month total) NZ$m 26 1,369 1,655 2,223 3,300 2,937
Dwelling consents - residential apc -0.8 -3.3 7.7 7.2 19.9 ...
House sales - dwellings apc 29.1 27.7 41.9 30.0 33.0 36.6
REINZ - house price index apc 9.2 9.6 10.8 13.2 15.0 17.1
Estimated net migration (12 month total) people 82,811 76,823 69,556 60,445 52,373 ...
ANZ NZ commodity price index apc 0.2 -3.9 -6.5 -5.6 -10.9 -5.9
ANZ world commodity price index apc -1.5 -2.8 -3.1 -2.3 -5.5 -0.4
ANZBO - business confidence net% -31.8 -41.8 -28.5 -15.7 -6.9 9.4
ANZBO - activity outlook net% -8.9 -17.5 -5.4 4.7 9.1 21.7
ANZ-Roy Morgan - consumer confidence net% 104.3 100.2 100.0 108.7 106.9 112.0
Weekly Benefit Numbers   18 Dec 25 Dec 1 Jan 8 Jan 15 Jan 22 Jan
Jobseeker Support number 208,465 211,320 212,441 213,755 213,853 213,359
Work Ready number 131,556 133,877 134,821 135,991 135,936 135,401
Health Condition and Disability number 76,909 77,443 77,620 77,764 77,917 77,958
COVID-19 Income Relief Payment number 3,655 2,648 2,096 2,069 1,390 662
Full-time number 3,283 2,363 1,870 1,846 1,253 583
Part-time number 372 285 226 223 137 79
Daily Indicators   Wed
20/1/21
Thu
22/1/21
Fri
22/1/21
Mon
25/1/21
Tue
26/1/21
Wed
27/1/21
NZ exchange and interest rates5              
NZD/USD $ 0.7124 0.7185 0.7218 0.7193 0.7190 0.7238
NZD/AUD $ 0.9239 0.9265 0.9304 0.9317 0.9332 0.9335
Trade weighted index (TWI) index 74.1 74.6 74.8 74.7 74.7 75.1
Official cash rate (OCR) % 0.25 0.25 0.25 0.25 0.25 0.25
90 day bank bill rate % 0.29 0.28 0.29 0.29 0.29 0.29
10 year govt bond rate % 1.01 1.04 1.07 1.06 1.03 1.03
Share markets6              
Dow Jones index 31,188 31,176 30,997 30,960 30,937 30,303
S&P 500 index 3,852 3,853 3,841 3,855 3,850 3,751
VIX volatility index index 21.6 21.3 21.9 23.2 23.0 37.2
AU all ords index 7,051 7,107 7,079 7,111 ... 7,060
NZX 50 index 13,026 13,112 13,333 13,399 13,323 13,374
US interest rates              
3 month OIS % 0.09 0.08 0.08 0.08 0.08 ...
3 month Libor % 0.22 0.22 0.22 0.21 0.22 ...
10 year govt bond rate % 1.10 1.12 1.10 1.05 1.05 1.04
Commodity prices6              
WTI oil US$/barrel 53.24 53.13 52.28 52.78 52.61 52.85
Gold US$/ounce 1,857 1,862.10 1,852.70 1,856.85 1,856.60 1,843.00
CRB Futures index 459 459.41 456.31 457.65 459.50 ...

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   2020Q2 Jul 20 Aug 20 Sep 20 2020Q3 Oct 20 Nov 20 Dec 20 2020Q4 Jan 21
United
States

[9.6%
share of
total goods
exports]
GDP1 qpc -9.0       7.5       ...  
Industrial production1 mpc   4.2 0.7 -0.1   1.0 0.5 1.6   ...
CPI apc   1.0 1.3 1.4   1.2 1.2 1.4   ...
Unemployment rate1 %   10.2 8.4 7.8   6.9 6.7 6.7   ...
Employment change1 000s   1761.0 1493.0 711.0   654.0 336.0 -140.0   ...
Retail sales value apc   2.7 3.6 6.1   5.4 3.7 2.9   ...
House prices2 apc   4.2 5.4 6.7   8.0 9.1 ...   ...
PMI manufacturing1 index   54.2 56.0 55.4   59.3 57.5 60.7   ...
Consumer confidence1,3 index   91.7 86.3 101.3   101.4 92.9 87.1   89.3
Japan
[6.1%]
GDP1 qpc -8.3       5.3       ...  
Industrial production1 mpc   8.7 1.0 3.9   4.0 -0.5 ...   ...
CPI apc   0.3 0.1 0.0   -0.4 -0.9 -1.1   ...
Unemployment rate1 %   2.9 3.0 3.0   3.1 2.9 ...   ...
Retail sales value apc   -2.9 -1.9 -8.7   6.4 0.6 ...   ...
PMI manufacturing1 index   45.2 47.2 47.7   48.7 49.0 50.0   ...
Consumer confidence1,4 index   29.5 29.3 32.8   33.3 33.6 31.8   ...
Euro area
[5.5%]
GDP1 qpc -11.7       12.4       ...  
Industrial production1 mpc   5.6 0.4 0.2   2.3 2.5 ...   ...
CPI apc   0.4 -0.2 -0.3   -0.3 -0.3 -0.3   ...
Unemployment rate1 %   8.7 8.6 8.5   8.4 8.3 ...   ...
Retail sales volume apc   0.2 4.4 2.6   4.2 -2.9 ...   ...
PMI manufacturing1 index   51.8 51.7 53.7   54.8 53.8 55.2   ...
Consumer confidence5 index   -15.0 -14.7 -13.9   -15.5 -17.6 -13.9   -15.5
United
Kingdom

[2.7%]
GDP1 qpc -18.8       16.0       ...  
Industrial production1 mpc   5.2 0.2 0.3   1.1 -0.1 ...   ...
CPI apc   1.1 0.2 0.6   0.7 0.4 ...   ...
Unemployment rate1 %   4.3 4.5 4.8   4.9 5.0 ...   ...
Retail sales volume apc   1.1 2.7 4.5   5.9 2.1 2.9   ...
House prices6 apc   1.5 3.7 5.0   5.8 6.5 7.3   ...
PMI manufacturing1 index   53.3 55.2 54.1   53.7 55.6 57.5   ...
Consumer confidence1,5 index   ... ... ...   ... ... ...   ...
Australia
[15.8%]
GDP1 qpc -7.0       3.3       ...  
CPI apc -0.3       0.7       0.9  
Unemployment rate1 %   7.5 6.8 6.9   7.0 6.8 6.6   ...
Retail sales value apc   12.8 5.4 6.6   7.7 12.1 ...   ...
House Prices7 apc 6.6       5.0       ...  
PMI manufacturing1 index   53.5 49.3 46.7   56.3 52.1 ...   ...
Consumer confidence8 index   87.9 79.5 93.8   105.0 107.7 112.0   107.0
China
[24.3%]
GDP apc 3.2       4.9       6.5  
Industrial production apc   4.8 5.6 6.9   6.9 7.0 7.3   ...
CPI apc   2.7 2.4 1.7   0.5 -0.5 0.2   ...
PMI manufacturing1 index   51.1 51.0 51.5   51.4 52.1 51.9   ...
South
Korea

[3.0%]
GDP1 qpc -3.2       2.1       1.1  
Industrial production1 mpc   1.9 -0.4 5.6   -1.1 0.3 ...   ...
CPI apc   0.3 0.7 1.0   0.1 0.6 0.5   ...

(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