Weekly economic update

Weekly Economic Update - 5 February 2021

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Weekly Economic Update 5 February 2021#

Labour market data stronger than anticipated…#

The unemployment rate fell to 4.9% in the December quarter from 5.3% in the September quarter (Figure 1). The participation rate was relatively stable, rising slightly to 70.2% from 70.1% the previous quarter.

Figure 1: Unemployment and underutilisation rates

Figure 1: Unemployment and underutilisation rates

Source: Stats NZ

…driven by a rise in employment…#

The Household Labour Force Survey (HLFS) recorded an additional 17,000 people employed compared to the previous quarter – up 0.6% (Figure 2). This was consistent with the Quarterly Employment Survey (QES) filled jobs measure up 16,500 or 0.8%. On an annual basis, HLFS employment was up 0.7% while QES filled jobs were up 0.9% on last year.

Figure 2: Employment

Figure 2: Employment

Source: Stats NZ

…led by construction and the public sector…#

The construction industry provided most of the boost to employment in the December quarter, with an additional 10,300 people employed in the quarter, to be up 21,000 over the year. This suggests labour supply may be less of a constraint on capacity in the construction sector than previously thought, alongside record levels of building consents currently in the pipeline. Significant gains in employment were also seen across the public sector industries. Partially offsetting employment declines were recorded (as expected) in some tourism-related industries.

…resulting in a pickup in activity…#

The solid employment story has translated into a similarly positive activity story, with hours worked up 4.5% in the December quarter following the 9.4% bounce-back in the September quarter after the 10.2% fall seen in the June quarter.  Hours worked in the December quarter were up 3.9% on the same quarter last year, however the corresponding QES hours paid series was up only 0.3% over the year.

The New Zealand Activity Index (NZAC) for December that was released two weeks ago pointed to activity in the December month being around 1.5% above the same period last year (Figure 3), sustaining the pace observed in the previous two months. These positive outturns highlight the greater than expected resilience that has been observed in the New Zealand economy since the easing of lockdown restrictions.

Figure 3: New Zealand Activity Index (NZAC)

Figure 3: New Zealand Activity Index (NZAC)

Source: The Treasury

supporting wage growth#

The strong employment result, combined with compositional shifts in the industry employment mix, has translated into support for earnings growth - with QES average hourly earnings up 4.2% over the year. Looking through the compositional effects, the unadjusted Labour Cost Index (LCI) rose 2.5% while the adjusted LCI rose 1.6% over the year (Figure 4).

Figure 4: Wage growth

Figure 4: Wage growth

Source: Stats NZ

While the December quarter labour market data points to a material upgrade in expectations for the economic outlook, uncertainty remains as to whether the strength in employment will be maintained in coming months, particularly as we move into what has traditionally been the peak of our international tourism season.

Building consents continue to rise…#

Building consents rose 4.9% in December, led by a 6.3% increase in multi-unit dwellings. Total annual consents were up 4.8% in December 2020 compared to a year ago and at 39,420, was the highest level since 1974. Consents issuance was up in all the main centres compared with a year ago, with Auckland and Canterbury both up over 25% in December 2020 compared with 2019.

High levels of consents issuance, together with a resilient labour market and strong house price growth over the past year points to continued strength in construction activity in the year ahead. However, there are still headwinds to consider, such as the potential for supply chain disruptions to dampen the pace at which growth occurs.

Consumer and business confidence higher#

The preliminary February release of the ANZ Business Outlook showed another lift in activity. Business confidence lifted 3 points to a net 12% of firms expecting conditions to improve while the activity outlook rose to 22%. Cost pressures are becoming apparent, with a net 71% of firms expecting higher costs ahead. Firms are intending to pass the costs on where they can, with a net 49% of firms intending to raise their prices. Investment and employment intentions and capacity utilisation are also higher, consistent with an improving growth outlook.

Consumer confidence rose by 2 points to 114 in the January release of the ANZ-Roy Morgan Consumer Confidence Survey. Consumer confidence is now just below its historical average of 120.

Fonterra raises milk price forecast#

Dairy prices rose for the sixth consecutive time at the GlobalDairyTrade auction this week. Overall, prices rose by 1.8% to be about 13% higher than a year ago (Figure 5). Whole milk powder prices rose by 2.3% while skim milk powder prices were down 1.5%.  Milk fat prices were particularly strong, with butter up 6.2%.

Figure 5: GlobalDairyTrade results

Figure 5: GlobalDairyTrade results

Sources: Haver/GobalDairyTrade

Fonterra has increased their 2020/21 forecast milk price range by 20 cents per kilogram of milk solids to $6.90-$7.50 for the season that finishes at the end of May. The midpoint of the range is now $7.20 per kgMS.

The ANZ World Commodity Price Index rose 3.6% in the month of January, with the dairy sector providing most of the lift. Stronger prices were also recorded in the meat and forestry sectors. In local currency terms, the index was up 2.4%.

US recovery continues…#

The advance estimate of the US’s December quarter GDP came in at a quarterly growth rate of 1%, close to market expectations and leaving the size of the economy US$475bn below its pre-pandemic level. Investment, exports and imports were strong, but private and government consumption was relatively soft.

Meanwhile, the January ISM manufacturing index ISM declined by 1.8 points (pts) to 58.7. Although weaker than expected, it remains above its long-term average and represents the eighth consecutive month of expansion. The new orders and production components declined, while the employment index improved marginally. The prices index increased by 4.5 pts to its highest level since April 2011, supported by higher commodity prices and strong supplier pricing power.

…and fiscal negotiations have started#

Republicans revealed a US$618bn fiscal stimulus plan on Monday, less than a third of the amount that was proposed by the Democrats. This large gap suggests that negotiations might be protracted, which could dampen the pace of the recovery in the March quarter. However, Democrats may decide to use budget reconciliation to pass the stimulus package without Republican support.

Euro area GDP contracts#

Euro area GDP contracted by 0.7% in the December quarter, slightly better than recent consensus forecasts. There was substantial variation between countries. Germany’s economy was 3.9% smaller at the end of 2020 compared to the end of 2019, while Spain’s was down 9.1%. With mobility restrictions still in place during the March quarter of 2021, another contraction in GDP is expected, followed by a steady recovery as vaccines aid in a gradual return to normal.

RBA extends bond purchasing programme#

The Reserve Bank of Australia (RBA) kept its targets of 10 basis points for the cash rate and the yield on the 3-year Australian Government bond unchanged, but surprised markets with a more dovish tone than expected. Despite an improved domestic and global economic outlook, the RBA announced that it would purchase an additional AU$100bn of government bonds when the current AU$100bn programme comes to an end in mid-April, at the same pace as currently of AU$5bn a week. The Bank also indicated that it will not raise interest rates until 2024 at the earliest, noting that the recovery remained dependent on “significant fiscal and monetary support”. The RBA expects average growth of 3.5% this year and next, roughly unchanged from previous forecasts, while its forecast for the unemployment rate at the end of 2022 was lowered from 6.0% to 5.5%.

Growth slows in Asia#

China’s Caixin manufacturing Purchasing Managers’ Index (PMI) weakened in January and was below market expectations. There was a slowdown in the growth in the production and new orders components, a decline in the new export business index, and sharp rises in the input costs and output prices components. Manufacturers still expect output to rise over the next year, but the degree of positive sentiment declined to an eight-month low in January. Many firms are concerned about a resurgence of the virus in China and abroad, which could cause further disruptions to business operations and supply chains and lead to a slowdown in the global demand recovery.

Elsewhere in Asia, Philippines’s GDP grew by 5% in the December quarter of 2020, still leaving it around 8% lower than the same period of 2019 (Figure 6). Singapore’s GDP bounced back by 2.1%, leaving it around 4% lower than the pre-pandemic level. In Taiwan, though the pace of growth slowed in the fourth quarter, its economy managed to grow by 3% in 2020.

Figure 6: Real GDP in selected Asian countries

Figure 6: Real GDP in selected Asian countries

Source: Haver, the Treasury

Date Key NZ Data Previous (apc)
11 Feb Electronic cards + 3.5%
12 Feb Food Price Index + 2.9%
12 Feb Rental Price Index + 3.1%

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: Marketview data via MBIE

Jobseeker (JS) and Income Support Recipients#

Jobseeker (JS) and Income Support Recipients

Source: MSD

People Movements at Selected Locations#

People Movements at Selected Locations

Source: Google

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   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 0.6 0.4 1.0 -0.3 -0.7 0.6
Unemployment rate1 % 4.2 4.1 4.2 4.0 5.3 4.9
Participation rate1 % 70.7 70.4 70.7 69.9 70.1 70.2
LCI salary & wage rates - total2 apc 2.5 2.6 2.5 2.1 1.8 1.6
QES average hourly earnings - total2 apc 4.2 3.6 3.6 3.0 3.6 4.2
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   Aug 20 Sep 20 Oct 20 Nov 20 Dec 20 Jan 21
Merchandise trade balance (12 month total) NZ$m 1,369 1,655 2,223 3,300 2,937 ...
Dwelling consents - residential apc -3.3 7.7 7.2 19.9 ... ...
House sales - dwellings apc 27.7 41.9 30.0 33.0 36.6 ...
REINZ - house price index apc 9.6 10.8 13.2 15.0 17.1 ...
Estimated net migration (12 month total) people 76,823 69,556 60,445 52,373 ... ...
ANZ NZ commodity price index apc -3.9 -6.5 -5.6 -10.9 -5.9 -2.2
ANZ world commodity price index apc -2.8 -3.1 -2.3 -5.5 -0.4 4.6
ANZBO - business confidence net% -41.8 -28.5 -15.7 -6.9 9.4 ...
ANZBO - activity outlook net% -17.5 -5.4 4.7 9.1 21.7 ...
ANZ-Roy Morgan - consumer confidence net% 100.2 100.0 108.7 106.9 112.0 113.8
Weekly Benefit Numbers   25 Dec 1 Jan 8 Jan 15 Jan 22 Jan 29 Jan
Jobseeker Support number 211,320 212,441 213,755 213,853 213,359 213,006
Work Ready number 133,877 134,821 135,991 135,936 135,401 134,840
Health Condition and Disability number 77,443 77,620 77,764 77,917 77,958 78,166
COVID-19 Income Relief Payment number 2,648 2,096 2,069 1,390 662 342
Full-time number 2,363 1,870 1,846 1,253 583 297
Part-time number 285 226 223 137 79 45
Daily Indicators   Wed
27/1/21
Thu
28/1/21
Fri
29/1/21
Mon
1/2/21
Tue
2/2/21
Wed
3/2/21
NZ exchange and interest rates5              
NZD/USD $ 0.7238 0.7134 0.7168 0.7177 0.7157 0.7206
NZD/AUD $ 0.9335 0.9355 0.9348 0.9400 0.9376 0.9470
Trade weighted index (TWI) index 75.1 74.4 74.7 74.8 74.6 75.2
Official cash rate (OCR) % 0.25 0.25 0.25 0.25 0.25 0.25
90 day bank bill rate % 0.29 0.29 0.29 0.29 0.28 0.28
10 year govt bond rate % 1.03 1.07 1.10 1.15 1.19 1.27
Share markets6              
Dow Jones index 30,303 30,603 29,983 30,212 30,687 ...
S&P 500 index 3,751 3,787 3,714 3,774 3,826 ...
VIX volatility index index 37.2 30.2 33.1 30.2 25.6 ...
AU all ords index 7,060 6,918 6,871 6,923 7,028 7,091
NZX 50 index 13,374 13,086 13,127 13,097 13,045 13,091
US interest rates              
3 month OIS % 0.08 0.07 0.07 0.08 ... ...
3 month Libor % 0.21 0.21 0.20 0.20 0.19 ...
10 year govt bond rate % 1.04 1.07 1.11 1.09 1.12 ...
Commodity prices6              
WTI oil US$/barrel 52.85 52.34 52.16 53.55 54.77 ...
Gold US$/ounce 1,843 1,853.70 1,863.80 1,862.95 1,833.10 ...
CRB Futures index 458 457.35 458.50 458.79 460.81 ...

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       1.0  
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   53.7 55.6 55.7   58.8 57.7 60.5   58.7
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 -1.6   ...
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 2.9   ...
Retail sales value apc   -2.9 -1.9 -8.7   6.4 0.6 -0.3   ...
PMI manufacturing1 index   45.2 47.2 47.7   48.7 49.0 50.0   49.8
Consumer confidence1,4 index   29.5 29.3 32.8   33.3 33.6 31.8   30.0
Euro area
[5.5%]
GDP1 qpc -11.7       12.4       -0.7  
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 %   8.6 8.6 8.6   8.4 8.3 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   54.8
Consumer confidence5 index   -14.9 -14.6 -13.6   -15.5 -17.6 -13.8   -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   6.4
PMI manufacturing1 index   53.3 55.2 54.1   53.7 55.6 57.5   54.1
Consumer confidence1,5 index   -27.0 -27.0 -25.0   -31.0 -33.0 -26.0   -28.0
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 55.3   55.3
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   51.3
South
Korea

[3.0%]
GDP1 qpc -3.2       2.1       1.1  
Industrial production1 mpc   1.9 -0.4 5.6   -1.2 0.3 3.7   ...
CPI apc   0.3 0.7 1.0   0.1 0.6 0.5   0.6

(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