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Weekly economic update

Weekly Economic Update - 4 September 2020

Weekly Economic Update 4 September 2020

Auckland joined the rest of New Zealand at Alert Level 2 on 31 August, and Cabinet will review current restrictions on 4 September. High-frequency data suggest that the impacts of August Alert Level restrictions differed from previous impacts, though the implications for overall economic activity are unclear. Business and consumer confidence both weakened in August, reflecting the impacts of the higher alert levels. The merchandise terms of trade reached a record high in the June quarter as export prices rose, though spending by overseas visitors fell heavily.

Australia’s GDP fell 7.0% in the June quarter from the previous quarter, while India’s output fell by a quarter – the sharpest decline among major economies so far. Meanwhile, the September quarter recovery has continued, although Purchasing Manager’s Indices (PMI) have shown mixed results. The United States’ central bank confirmed it would be switching to a flexible average inflation targeting regime.

Auckland joins the rest of NZ at Alert Level 2

Auckland joined the rest of the country at Alert Level 2 on Monday 31 August, although with additional limits on gatherings. Cabinet will review the current Alert Level 2 restrictions on 4 September. There are 79 active COVID-19 cases which are linked to the Auckland August cluster and 36 active cases in managed isolation at the border. Over 285,000 tests have been taken since 12 August, bringing the total to around 790,000.

Figure 1: Daily COVID-19 tests and cases by source

 

Source: Ministry of Health

Second Alert Level impacts appear different

High-frequency data suggest that the impact on Auckland activity from Alert Level 3 restrictions in August differed from the impact of Level 3 in April/May (Figure 2). Although card spending fell by more in August, the reductions in light and heavy traffic volumes were smaller.

Figure 2: Auckland Alert Level impacts

Sources: NZTA, Paymark and Verifone data via Data Ventures

Meanwhile, the impact of August’s Alert Level 2 restrictions in the rest of NZ was similar to the impact of Level 2 in May/June (Figure 3). Although light traffic fell by less, the levels of heavy traffic and card spending were slightly lower.

Figure 3: NZ excluding Auckland Alert Level impacts

Sources: NZTA, Paymark and Verifone data via Data Ventures

Income support continues to rise

Around 24,800 people were receiving the COVID-19 Income Relief Payment (CIRP) as of 28 August, up 800 on the previous week. The total number of people receiving income support (Jobseeker and CIRP) was 222,000 – up 2,500 on the week prior.

Consumer confidence eases again…

Consumer confidence fell 4 points to 100.2 in August in the ANZ-Roy Morgan Consumer Confidence Survey, well below its historical average of 120, and around the 2009 average (Figure 4). Consumer spending picked up strongly following the easing of alert levels earlier this year, but the high-frequency card data suggest the pace of growth has slowed.

…and business confidence remains weak…

The August ANZ Business Outlook Survey showed headline business confidence was little-changed from the preliminary read with a net 41.8% of businesses expecting conditions to deteriorate (Figure 4). Expectations of firm’s own activity was at -17.5%, down from -17.0% in the preliminary August read. Both indicators are weaker than in July. The August survey showed that Auckland businesses were more downbeat than elsewhere as a result of higher alert levels.

Figure 4: Business and consumer confidence

Source: ANZ, ANZ Roy-Morgan

…as building consents fall

Residential building consents fell 4.5% in July after a 0.7% rise in June. Consents bounced back strongly in May when restrictions were eased. The decline in consents in July was driven by weaker consent numbers for both standalone dwellings and multi-unit dwellings, which fell 3.9% and 5.3% respectively.

Annual consent issuance remains near the 45-year high recorded in February 2020 but we expect building consents to ease in coming months as income growth slows and unemployment rises.

The terms of trade rises to a record high…

The merchandise terms of trade rose by 2.5% to a record high in the June quarter as goods export prices rose 2.4% over the quarter, with gains seen in dairy, fruit and forestry, while goods import prices were broadly flat (Figure 5).

Figure 5: Terms of trade

Source: Stats NZ

Spending by overseas visitors and students fell by half in the June 2020 quarter compared to the same period in 2019 to $1.8 billion. Although New Zealand’s borders have been closed to international visitors and students since March, a large number of travellers were already in the country and may have remained for longer than they otherwise would have, preventing a larger fall.

…but export prices are easing

The ANZ Commodity Price Index showed world prices for New Zealand exports fell 0.9% in August. Lower dairy prices were partly offset by stronger meat and aluminium prices. In local currency terms, the index fell 0.2% owing to a weaker NZD.

Meanwhile, the GlobalDairyTrade (GDT) index fell for the fourth consecutive time in this week’s auction (down 1.0%), as the pandemic continues to weigh on prices. Whole milk powder prices fell 2.0%, butter prices were down 1.2% and skim milk powder prices rose 1.8%. The GDT index is down about 7.5% from the same month a year ago.

We expect that relatively weak global demand will put downward pressure on export prices in the second half of the year. Combined with an expected recovery in imports, this is expected to widen the trade deficit.

Shift in Federal Reserve’s monetary policy strategy…

Last week, the United States (US) Federal Reserve Bank (Fed) confirmed it would be switching to a flexible form of ‘average’ inflation targeting. This means that, rather than targeting consumer price inflation of around 2%, the Fed will instead aim to achieve an inflation rate that averages 2% over time. If inflation is therefore persistently below 2%, monetary policy will aim to achieve inflation in excess of 2% for some (unspecified) time. This policy change came at the conclusion of the Fed’s 1½-year review of its monetary policy framework. The other major change to the strategy was with regard to the labour market: the Fed will no longer tighten monetary policy pre-emptively if unemployment is at relatively low levels unless if it was resulting in a sustained increase in inflation to above 2%. The implications of these changes will become clearer following the Fed’s monetary policy committee meeting in mid-September.

Other central bank governors have echoed these sentiments. The Bank of England’s Andrew Bailey stressed that the bank is “not out of firepower by any means”, and the European Central Bank noted that it was ready to do more if needed.

…boosting equities and lowering USD

Although the change in the Fed’s policy was in line with market expectations, it has led to a rise in inflation expectations and a further weakening in the US dollar. The S&P500 had its best August since 1984, but smaller companies (which better reflect the underlying health of the economy) have under-performed (Figure 6).

Figure 6: US equities

Source: Haver

Recent US economic data has generally been positive. The US Institute of Supply Management (ISM) manufacturing Purchasing Manager’s Index (PMI) for August rose 1.8 points to 56.0. While the new orders component is now at its highest level since 2004, the employment component remains in contractionary territory.

GDP declines in Australia…

June quarter GDP fell by 7.0% compared to the previous quarter, the steepest fall since records began in 1959. Following the 0.3% GDP decline in the March quarter, this is Australia’s first technical recession since 1991. Household final consumption expenditure declined by 12.1%, with spending on services falling by 17.6% (Table 1). The household saving to income ratio rose from 6.0% to 19.8%, the highest rate since June 1974. Net exports made a 1.0 percentage point contribution to real GDP growth in the quarter.

Table 1: Key aggregates
  2020Q1 2020Q2
Quarterly change in seasonally adjusted measures
Real GDP -0.3 -7.0
Household final consumption -1.2 -12.1
Gross fixed capital formation    
  Private -0.5 -6.5
  Public -0.9 1.0
Exports of goods and services -4.4 -6.7
Imports of goods and services -6.7 -12.9

Source: Australian Bureau of Statistics

The current account surplus rose to a record $17.7 billion in seasonally adjusted terms in the June quarter, compared to $9.0 billion in the March quarter. This was mostly due to the balance on goods and services rising from $19.1 billion to $23.9 billion, with imports falling by more than exports.

The Reserve Bank of Australia (RBA) decided to expand and extend its term funding facility after its policy decision meeting on Tuesday. The total amount available under the facility was increased to around $200 billion, and will be available until the end of June 2021. The targets for the cash rate and the yield on 3-year Australian government bonds were maintained at 25bps. The Bank stated that it will maintain accommodative policy settings for as long as necessary, and that it “continues to consider how further monetary measures could support the recovery”.

…and India

India’s June quarter GDP declined by an estimated 23.9% compared to a year earlier (and by 25.6% compared to the previous quarter), the steepest contraction reported so far in the quarter by a major economy, reflecting the severity of India’s lockdown. The hardest hit sectors were trade & transport services and manufacturing, which contracted by 47% and 39% compared to year-ago levels, respectively. There are concerns about the pace of the recovery, with the country continuing to record a large number of new COVID-19 infections on a daily basis, and some regions having remained in lockdowns during July and August.

…while the rest of Asia continues to recover

China’s official manufacturing PMI slipped marginally to 51.0 in August from 51.1 the previous month due to heavy flooding in the south of the country. The official services PMI increased by more than expected to 55.2 from 54.2 in July. Furthermore, the Caixin/IHS Markit manufacturing PMI for China rose from 52.8 in July to 53.1 in August, the highest level since January 2011. Firms reported their first increase in export sales in 2020 to date. While the employment index was in contractionary territory for the eighth consecutive month, the pace of the decline has moderated.

Elsewhere, Indonesia’s manufacturing PMI moved into expansionary territory (above 50) in August for the first time since February. South Korea’s manufacturing PMI improved in August but remained below 50, while there were further deteriorations in Vietnam and the Philippines (Figure 7).

Figure 7: Asian manufacturing PMIs

Source: Haver, IHS Markit

Date Key NZ Data Previous
4 Sept Building work put in place (volume), June quarter -5.7%
9 Sept Manufacturing and wholesale trade, June quarter n/a

High-Frequency Indicators (Domestic)

Traffic Movement

Source: Waka Kotahi NZ Transport Agency

Freight Movement

Source: Waka Kotahi NZ Transport Agency

Electricity Demand

Source: Electricity Authority

Retail Spending

Source: Paymark and Verifone data via Data Ventures

Jobseeker and Income Support Recipients

Source: MSD

Fiscal Support: Wage Subsidy (paid)

Source: MSD

High-Frequency Indicators (Global)

Trade Weighted Index

Source: RBNZ

Volatility Index

Source: Haver

US Activity and Equities

Sources: Federal Reserve Bank of New York, Haver

Labour Markets

Source: Haver

COVID-19 Cases

Sources: World Health Organisation/Haver

World Commodity Prices

Source: ASB

Tables

Quarterly Indicators   2019Q1 2019Q2 2019Q3 2019Q4 2020Q1 2020Q2
Real Production GDP1 qpc 0.4 0.1 0.8 0.5 -1.6 ...
  aapc 3.1 2.9 2.7 2.3 1.5 ...
Current account balance (annual) %GDP -3.6 -3.4 -3.3 -3 -2.7 ...
Merchandise terms of trade apc -1.9 -1.0 0.9 7.1 5.4 6.5
CPI  inflation qpc 0.1 0.6 0.7 0.5 0.8 -0.5
  apc 1.5 1.7 1.5 1.9 2.5 1.5
Employment (HLFS)1 qpc -0.2 0.6 0.4 0.2 1.0 -0.4
Unemployment rate1 % 4.1 4.0 4.1 4.1 4.2 4.0
Participation rate1 % 70.3 70.3 70.4 70.1 70.5 69.7
LCI salary & wage rates - total2 apc 2.0 2.1 2.5 2.6 2.5 2.1
QES average hourly earnings - total2 apc 3.4 4.4 4.2 3.6 3.6 3.0
Core retail sales volume apc 3.9 3.6 5.4 3.3 4.0 -11.7
Total retail sales volume apc 3.3 2.9 4.5 3.3 2.3 -14.2
WMM - consumer confidence3 Index 103.8 103.5 103.1 109.9 104.2 97.2
QSBO - general business situation1,4 net% -27.0 -30.7 -38.0 -28.6 -68.0 -58.8
QSBO - own activity outlook1,4 net% 5.3 -2.0 -0.2 4.1 -13.9 -24.8
Monthly Indicators   Mar 20 Apr 20 May 20 Jun 20 Jul 20 Aug 20
Merchandise trade balance (12 month total) NZ$m -3,382 -2,393 -1,274 -1,129 -115 ...
Dwelling consents - residential apc -8.3 -16.5 -4.4 20.4 -0.8 ...
House sales - dwellings apc 2.7 -77.2 -44.3 10.9 24.6 ...
REINZ - house price index apc 9.0 8.6 7.0 7.7 9.4 ...
Estimated net migration (12 month total) people 86,404 84,517 82,084 79,424 ... ...
ANZ NZ commodity price index apc 5.8 0.9 -1.4 -2.5 -0.1 ...
ANZ world commodity price index apc -5.8 -9.2 -8.2 -5.3 -1.7 ...
ANZBO - business confidence net% -63.5 -66.6 -41.8 -34.4 -31.8 -41.8
ANZBO - activity outlook net% -26.7 -55.1 -38.7 -25.9 -8.9 -17.5
ANZ-Roy Morgan - consumer confidence net% 106.3 84.8 97.3 104.5 104.3 100.2
Weekly Benefit Numbers   24 Jul 31 Jul 7 Aug 14 Aug 21 Aug 28 Aug
Jobseeker Support number 192,374 192,488 193,094 193,997 195,495 197,227
Work Ready number 124,618 124,443 124,679 125,076 126,225 127,615
Health Condition and Disability number 67,756 68,045 68,415 68,921 69,270 69,612
COVID-19 Income Relief Payment number 20,023 20,957 21,988 22,834 24,053 24,811
Full-time number 18,077 18,863 19,745 20,518 21,528 22,221
Part-time number 1,946 2,094 2,243 2,316 2,525 2,590
Daily Indicators   Wed
26/8/20
Thu
27/8/20
Fri
28/8/20
Mon
31/8/20
Tue
1/9/20
Wed
2/9/20
NZ exchange and interest rates5              
NZD/USD $ 0.6560 0.6632 0.6649 0.6739 0.6758 0.6769
NZD/AUD $ 0.9109 0.9169 0.9145 0.9146 0.9133 0.9215
Trade weighted index (TWI) index 71.1 71.7 71.9 72.4 72.4 72.7
Official cash rate (OCR) % 0.25 0.25 0.25 0.25 0.25 0.25
90 day bank bill rate % 0.28 0.28 0.29 0.29 0.30 0.30
10 year govt bond rate % 0.55 0.58 0.59 0.61 0.63 0.59
Share markets6              
Dow Jones index 28,332 28,492 28,654 28,430 28,646 29,101
S&P 500 index 3,479 3,485 3,508 3,500 3,527 3,581
VIX volatility index index 23.3 24.5 23.0 26.4 26.1 26.6
AU all ords index 6,294 6,311 6,261 6,246 6,143 6,252
NZX 50 index 12,032 12,053 12,094 11,938 11,793 11,903
US interest rates              
3 month OIS % 0.09 0.08 0.09 0.09 0.09 ...
3 month Libor % 0.26 0.25 0.24 ... 0.25 ...
10 year govt bond rate % 0.69 0.74 0.74 0.72 0.68 0.66
Commodity prices6              
WTI oil US$/barrel 43.39 43.04 42.96 42.61 42.76 41.51
Gold US$/ounce 1,933 1,923.85 1,957.35 ... 1,972.35 1,947.05
CRB Futures index 391 391.14 393.10 394.76 394.12 396.10

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   Jan 20 Feb 20 Mar 20 2020
Q1
Apr 20 May 20 Jun 20 2020
Q2
Jul 20 Aug 20
United
States

[9.6%
share of
total goods
exports]
GDP1 qpc       -1.3       -9.1    
Industrial production1 mpc -0.4 0.1 -4.3   -12.8 0.9 5.7   3.0 ...
CPI apc 2.5 2.3 1.5   0.3 0.1 0.6   1.0 ...
Unemployment rate1 % 3.6 3.5 4.4   14.7 13.3 11.1   10.2 ...
Employment change1 000s 214.0 251.0 -1373.0   -20787.0 2725.0 4791.0   1763.0 ...
Retail sales value apc 4.9 4.5 -5.6   -19.9 -5.6 2.1   2.7 ...
House prices2 apc 3.1 3.5 3.9   3.9 3.6 3.5   ... ...
PMI manufacturing1 index 50.9 50.1 49.1   41.5 43.1 52.6   54.2 56
Consumer confidence1,3 index 130.4 132.6 118.8   85.7 85.9 98.3   91.7 84.8
Japan
[6.1%]
GDP1 qpc       -0.6       -7.8    
Industrial production1 mpc 1.9 -0.3 -3.7   -9.8 -8.9 1.9   8.0 ...
CPI apc 0.6 0.5 0.4   0.2 0.0 0.1   0.4 ...
Unemployment rate1 % 2.4 2.4 2.5   2.6 2.9 2.8   2.9 ...
Retail sales value apc -0.4 1.6 -4.7   -13.9 -12.5 -1.3   -2.8 ...
PMI manufacturing1 index 48.8 47.8 44.8   41.9 38.4 40.1   45.2 47.2
Consumer confidence1,4 index 39.2 38.2 31.1   21.3 24.1 28.5   29.5 29.3
Euro area
[5.5%]
GDP1 qpc       -3.6       -12.1    
Industrial production1 mpc 1.9 -0.1 -11.8   -18.0 12.3 9.1   ... ...
CPI apc 1.4 1.2 0.7   0.3 0.1 0.3   0.4 ...
Unemployment rate1 % 7.4 7.3 7.2   7.4 7.5 7.7   7.9 ...
Retail sales volume apc 2.3 2.6 -8.2   -19.4 -3.1 1.3   ... ...
PMI manufacturing1 index 47.9 49.2 44.5   33.4 39.4 47.4   51.8 51.7
Consumer confidence5 index -8.1 -6.6 -11.6   -22.0 -18.8 -14.7   -15.0 -14.7
United
Kingdom

[2.7%]
GDP1 qpc       -2.2       -20.4    
Industrial production1 mpc 0.2 0.3 -4.3   -20.4 6.2 9.4   ... ...
CPI apc 1.8 1.7 1.5   0.8 0.6 0.6   1.1 ...
Unemployment rate1 % 3.9 4.0 3.9   3.9 3.9 3.9   ... ...
Retail sales volume apc 0.8 -0.1 -6.1   -22.7 -12.9 -1.6   1.4 ...
House prices6 apc 1.9 2.3 3.0   3.7 1.8 -0.1   1.5 ...
PMI manufacturing1 index 50.0 51.7 47.8   32.6 40.7 50.1   53.3 55.2
Consumer confidence1,5 index -6.5 -6.2 -8.2   -22.7 -23.7 -21.0   -16.6 -16.6
Australia
[15.8%]
GDP1 qpc       -0.3       -7.0    
CPI apc       2.2       -0.3    
Unemployment rate1 % 5.3 5.1 5.2   6.4 7.1 7.4   7.5 ...
Retail sales value apc 2.2 5.7 9.4   -8.9 5.5 8.6   ... ...
House Prices7 apc       8.1       ...    
PMI manufacturing1 index 45.4 44.3 53.7   35.8 41.6 51.5   53.5 49.3
Consumer confidence8 index 93.4 95.5 91.9   75.6 88.1 93.7   87.9 79.5
China
[24.3%]
GDP apc       -6.8       3.2    
Industrial production apc -13.5 -13.5 -1.1   3.9 4.4 4.8   4.8 ...
CPI apc 5.4 5.2 4.3   3.3 2.4 2.5   2.7 ...
PMI manufacturing1 index 50.0 35.7 52.0   50.8 50.6 50.9   51.1 51.0
South
Korea

[3.0%]
GDP1 qpc       -1.3       -3.2    
Industrial production1 mpc -1.5 -3.7 4.9   -6.6 -7.0 7.2   1.6 ...
CPI apc 1.5 1.1 1.0   0.1 -0.3 -0.0   0.3 0.7

(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: 
Thursday, 3 September 2020