Weekly Economic Update - 6 November 2020

Weekly Economic Update 6 November 2020#

COVID-19 cases continue to be recorded in Managed Isolation and Quarantine facilities, and two workers at a facility have also returned positive test results. The unemployment rate increased to 5.3%, with a record 37,000 additional people recorded as unemployed. Building consents numbers remain at near-record highs and consumer confidence continues to improve, while early estimates of business confidence for November remained broadly unchanged from October.

The results of the US election are unclear, but analysts have already pared back their expectations of future fiscal stimulus in the US. In the euro area, the acceleration in new virus cases and more stringent restrictions is threatening to reverse the gains made over the September quarter, and may slow moves elsewhere to ease border restrictions.

Managed isolation workers test positive#

Two workers at a managed isolation facility in Christchurch have tested positive for COVID-19 this week. Genome sequencing has indicated that the infection came from within the facility, though the individual source is still under investigation (Figure 1). The Auckland August cluster is now considered closed after 28 days without a new case from the date when all cases completed isolation.

Figure 1: Daily COVID-19 cases by source

Source: Institute of Environmental Science and Research

Card spending appears volatile at Alert Level 1#

After recovering in late October, electronic card spending trended down in the week to 2 November to around 95% of the previous Alert Level 1 average (Figure 2).The gap between spending in Auckland and the rest of the country has mostly closed, though spending appears more volatile than during the previous Alert Level 1 period.

Figure 2: Electronic card spending

Source: Google

Wage Subsidy support nears zero#

In the week to 30 October, the number of COVID‑19 Income Relief Payment (CIRP) recipients increased by 262 as Jobseeker Support recipients fell by 405, bringing the total number of recipients of Jobseeker and the CIRP to 212,400. Fewer than 500 jobs were supported by the Wage Subsidy Scheme on 30 October, after supporting nearly 1.7 million jobs at the end of May. Jobseeker Support has risen since wage subsidy coverage began to fall, though the growth in Jobseeker numbers has plateaued in recent weeks (Figure 3).

Figure 3: Jobseeker Support and Wage Subsidy

Source: Ministry of Social Development

Record quarterly rise in unemployment#

The unemployment rate rose to 5.3% in the September quarter from 4.0% in the June quarter, less than the 6.4% rate we had forecast in PREFU. This was the largest ever quarterly increase, with a record 37,000 additional people unemployed compared to the June quarter (Figure 4). The number of people employed fell by 0.8%, with some of the increase in the numbers of people unemployed coming from people who had been classified in the June quarter as being “Not in the Labour Force” as a result of the COVID-19 alert level restrictions. This resulted in the labour force participation rate picking up slightly to reach 70.1% following a sharp fall in the June quarter as people withdrew from the labour force in response to the alert level restrictions. Continuing alert level restrictions in Auckland during the September quarter saw the number of people employed in Auckland fall by 18,000, with much of this reduction occurring in accommodation and food service industries, where employment levels fell 6.5% over the quarter. The underutilisation rate continued to increase to 13.2%.

Figure 4: Unemployment and underutilisation rates

Source: Stats NZ

Hours worked in the September quarter rebounded sharply following the record fall observed in the June quarter, although there remain impacts from COVID-19, with around 57,000 people still reporting COVID-19 as a reason why they are working fewer hours that normal.

Quarterly wage inflation as measured by the Labour Cost Index (LCI) was 0.6%, with public sector wages growing 0.9%. Occupations such as police, hospital staff, and teachers experienced wage increases from previously agreed collective employment agreements, which influenced public sector wage inflation this quarter. Private sector wages grew 0.4% in the quarter, as occupations that faced voluntary pay decreases recovered to pre-COVID-19 levels. The Quarterly Employment Survey showed stronger wage growth, as average ordinary time hourly earnings rose 1.4% quarterly and 3.6% annually.

Building consents near a 45-year high…#

Seasonally adjusted new dwelling consents increased 3.6% in the month of September. The pipeline of consented activity remains strong and near a 45-year high. Housing consents drove the increase this month, rising 6.9% from August, while multi-unit dwelling consents continued to ease, down 0.8% in the month and 12.6% from a year ago. Nearly half of the new dwellings consented this month were in Auckland, which also recorded over $1 billion of total consented activity (residential and non-residential) for the first time.

Feedback from discussions with the construction sector suggest that building activity is currently buoyed by strong demand that should see at least three months of work lined up, while the medium term outlook is less clear. With the labour market expected to deteriorate, border restrictions continuing to hamper population growth and uncertainty remaining heightened over the quarters ahead, the growth in consents issuance is expected to ease.

…and confidence improves further#

Consumer confidence lifted 9 points to 108.7 in the October release of the ANZ-Roy Morgan Consumer Confidence survey but remains under its historical average of around 120. The preliminary read of the ANZ Business Outlook for November showed little change from October, with an unchanged net 16% of firms expecting general business conditions to deteriorate. Firms' expectations regarding their own activity remained more positive, with a net 5% expecting their own business activity to improve.

Pandemic puts pressure on dairy prices#

The ANZ World Commodity Price Index rose 1.9% in October, reflecting the recent strength in dairy prices (up 3.6%). In local currency terms, the index rose 2.5%. After rising for 3 consecutive auctions, dairy prices fell 2.0% at the GlobalDairyTrade auction this week as lockdowns were imposed in many parts of the world following renewed COVID-19 outbreaks. Whole milk powder prices fell 2.0% and skim milk powder prices were down 4.4%.

US election result uncertain#

The close election results and uncertainty about final outcomes has created some volatility in financial markets, but no major disruption. One source of uncertainty remains further fiscal stimulus, where the close result has led analysts to pare back expectations. Analysts note that it may take a few days for the election result to become clear.

Growth rebounds in the euro area…#

In the euro area, initial estimates showed September quarter GDP (3Q GDP) was 12.7% higher than in the June quarter, which fell 11.8%, and well above market expectations of a 9.4% rise. However, accelerating COVID-19 cases and stricter public health measures have weakened prospects for the December quarter.

Those countries that experienced the largest falls over the first half of the year recorded the highest growth rates in the September quarter, with Italy, Spain and France recording growth of 16.1%, 16.7% and 18.2% respectively, while Germany grew 8.2%. Compared to the December 2019 quarter, activity was down a bit over 4%, in Germany, Italy and France, while Spain lagged (Figure 5). Euro area activity was down 4.3% on pre-pandemic levels.

Figure 5: Real GDP - selected euro area economies

Source: Haver

…Hong Kong and Taiwan#

In Asia, preliminary 3Q GDP data in Hong Kong and Taiwan showed activity increased 3.0% and 4.4% respectively. The rise in Hong Kong followed a small fall in the previous quarter and ended five consecutive quarters of falling GDP. In Taiwan, the contained pandemic situation, combined with surging technology exports, have resulted in GDP increasing 3.5% from the same quarter a year ago. Governments in Hong Kong and Taiwan are exploring travel bubbles with other countries, but the accelerating global spread of COVID-19 may delay any moves.

Monetary policy eased in Australia#

The Reserve Bank of Australia (RBA) largely met expectations of cutting the cash rate, the yield target on 3-year government bonds, and the interest rate on the Term Funding Facility, to 0.1% from 0.25% at is Board meeting this week. The RBA also announced a quantitative easing (QE) programme of purchases of $100 billion of government bonds of maturities of around 5 to 10 years over the next six months, and cut the interest rate on Exchange Settlement accounts to 0%.

The Governor said there was room to ease further, but negative rates were unlikely. After the QE programme, the RBA will hold about 15% of bonds outstanding, lower than most other central banks.

In a speech accompanying the announcement, RBA Governor Lowe emphasised the backdrop of an extended period of high unemployment as the motivating force behind the decision to act. The RBA expects the unemployment rate to be 6% by the end of 2022, which is the end of their current forecast horizon. This is an improvement on earlier projections of 7%, and the peak unemployment rate is now a little below 8%, compared to 10% earlier. Full details of the RBA's economic forecast will be released in Friday's Statement on Monetary Policy.

Meanwhile, September quarter retail sales volumes rose 6.5%, a record amount, following a fall of 3.5% in the June quarter. This will support the recovery in Q3 GDP, which some analysts now expect to expand by over 1%. Q3 GDP data is released on 2 December 2020.

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 (JS) and Income Support Recipients#

Source: MSD

Wage Subsidy (jobs supported)#

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#

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

(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