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Weekly economic update

Weekly Economic Update - 9 October 2020

Weekly Economic Update 9 October 2020

All of New Zealand is at Alert Level 1 for the first time in two months, and there are no active cases remaining in the community. Weekly employment data show that while job numbers have trended down since May, median weekly earnings have trended up. Household consumer confidence remains subdued while the preliminary read of October business confidence shows own activity expectations returning to positive territory for the first time since February. Dairy prices slipped somewhat over September, however recent auction results point to a strengthening outlook.

The unemployment rate in the United States continued to fall in September, but there are still close to 11 million fewer people employed than before the pandemic. Negotiations on additional fiscal support have been put on hold until after the election, which reinforces the expectation that the pace of the recovery will slow going into the December quarter. The Australian Federal budget revealed new fiscal measures worth 6.8% of GDP even though the outlook for the economy has improved since the July Update.

Auckland joins rest of NZ at Alert Level 1

Two weeks have passed since the last COVID-19 case related to the Auckland August cluster was reported (Figure 1). All of New Zealand is now at Alert Level 1 for the first time in nearly two months. There are no active COVID-19 cases remaining in the community, with all 39 active cases in managed isolation at the border. The total number of tests conducted now exceeds 980,000.

Figure 1: Daily COVID-19 cases by source

Figure 1: Daily COVID-19 cases by source

Source: Institute of Environmental Science and Research

Earnings rise as job numbers trend down…

Experimental weekly employment data from Stats NZ show that while job numbers (compared to 2019) have been trending down since May, median weekly earnings have trended upward (Figure 2).

Figure 2: Weekly paid jobs and median earnings

Figure 2: Weekly paid jobs and median earnings

Source: Stats NZ

This may reflect a compositional change in the labour market rather than an increase in hourly earnings, as the jobs usually most at risk during a recession are those on relatively low wages and hours. When these jobs are lost, median earnings will increase even if individual wage rates remain unchanged. Growth in services and goods-producing jobs has trended down, however job numbers remain above last year’s levels (Figure 3).

Figure 3: Weekly paid jobs by industry

Figure 3: Weekly paid jobs by industry

Source: Stats NZ

…as do income support recipients

In the week to 2 October, the number of people receiving the COVID-19 Income Relief Payment (CIRP) fell by 996 as Jobseeker Support rose by 727. Total income support numbers (Jobseeker and CIRP) fell slightly to 216,000.

Business confidence continues to recover…

The preliminary release of the ANZ Business Outlook for October saw forward-looking indicators improve further. Business confidence lifted 14 percentage points to a net 15% of firms expecting conditions to deteriorate, while expectations of their own activity rose 9 percentage points to a net 4% of firms now expecting an improvement in their own activity (Figure 4), returning to positive territory for the first time since February. Many activity indicators are now back in their 2019 ranges. Employment intentions lifted 9 percentage points to a net 3% of firms intending to reduce employment, despite wage subsidies coming to an end.

Figure 4: Business confidence

Figure 4: Business confidence

Source: ANZ

…and consumer confidence remains steady

The ANZ-Roy Morgan Consumer Confidence Index remained at 100.0 in September, well below its historical average of about 120, and around the 2009 average. While confidence and spending have bounced back strongly as Alert Level restrictions have progressively eased, households' concerns about their economic future is still putting pressure on confidence, consistent with subdued spending behaviour going forward.

Dairy prices fell in September…

The ANZ World Commodity Price Index fell 0.2% in September (Figure 5). In local currency terms, the index fell 1.3%, owing to a strengthening NZ dollar.

Horticulture prices rose 1.1%, driven by higher kiwifruit prices while apple prices eased. Forestry prices rose 1.7% and are now 2.0% higher than a year ago, but still well below early-2019 levels. Recent demand for logs has been strong, both domestically and from China, our main export market.

The meat and fibre index fell 0.4%, with beef prices down 1.5% and lamb prices up 0.6%. Dairy prices fell 1.3% as butter and whole milk powder prices eased. These falls were partly offset by higher prices for skim milk powder and cheese.

Figure 5: Selected commodity prices

Figure 5: Selected commodity prices

Source: ANZ

…but recovered in the latest auctions

In this week's GlobalDairyTrade auction, the index rose 2.2% in US dollar terms from the previous event (3.4% in New Zealand dollar terms) on increased volumes of product. This is the second increase following four consecutive declines.

Whole milk powder prices rose 1.7% while skim milk powder prices eased 0.9% (Figure 6). Butter and butter milk powder rose strongly, up 8.4% and 9.1% respectively and anhydrous milk fat rose 5.4%. The rise in milk fat prices was driven by lower offer volumes for these products.

Figure 6: GlobalDairyTrade auction results

Figure 6: GlobalDairyTrade auction results

Sources: GlobalDairyTrade, Haver

Prices have remained firm as New Zealand production reaches its seasonal peak, indicating that global dairy demand remains strong despite the impact of the pandemic.

US unemployment falls…

The unemployment rate in the United States (US) fell from 8.4% to 7.9% in September, with the participation rate dropping again from 61.7% to 61.4% (Figure 7). Non-farm employment increased by 661,000, lower than market expectations for an 859,000 increase. The lower than expected employment growth was mostly due to a large fall in public sector employment. Overall, while temporary unemployment fell, there was an increase in permanent unemployment, and there are still close to 11 million fewer jobs than before the pandemic.

Figure 7: US labour market

Figure 7: US labour market

Source: Haver

…although household incomes fell

Meanwhile, personal income among US households fell by 2.7% in August, while the growth in consumption slowed. This was mainly due to the expiration of additional unemployment benefits at the end of July. US President Trump indicated on Tuesday that negotiations on further fiscal stimulus measures have been put on hold until after the election. This announcement came just hours after Federal Reserve Chair Powell said that Congress should err on the side of providing too much fiscal support, warning that a conservative approach that results in a slower recovery could worsen existing inequalities in the economy.

Indicators point to slowing pace of recovery

The US Institute for Supply Management (ISM) services Purchasing Managers (PMI) index increased by 0.9 points (pts) in September to 57.8. Although this is still below July's peak of 58.1, it is well above the 20-year average of 54.3. This suggests that growth in the services sector is above-trend despite concerns that the pace of the recovery is slowing. Encouragingly, the employment sub-index rose back above 50 following six consecutive months of contraction.

Elsewhere, final reads on PMIs suggest that the pace of the recovery is slowing (Figure 8). The euro area final composite PMI for September was slightly better than the preliminary read thanks to a strong late rebound in the German services index and a better than expected performance in Italy. While the employment sub-index rose by 0.9, at 47.7 it is still in contractionary territory. The composite index slipped 1.4 pts from August.

Figure 8: Composite PMIs, selected countries

Figure 8: Composite PMIs, selected countries

Source: Haver

RBA leaves policy interest rate unchanged…

At its meeting on Tuesday, the Reserve Bank of Australia (RBA) decided to leave all its policy settings unchanged. The targets for the cash rate and the yield on 3-year Australian Government bonds therefore remain at 0.25%. The RBA indicated a willingness to keep the current accommodative monetary policy settings "as long as is required" and continues to consider what other monetary policy easing measures could be employed. Analysts expect the RBA will ease monetary policy further in the coming months.

…and government unveils new stimulus in budget

In its delayed budget for 2020/21, the Australian Federal government unveiled new fiscal spending measures worth AUD98 billion (bn, 6.8% of GDP) to support the economic recovery in the aftermath of the COVID-19 pandemic. This brings total government support in response to COVID-19 to AUD507bn including balance sheet measures. New measures include the bringing forward of income tax cuts worth AUD17.8bn, a AUD10bn increase in infrastructure investment over 10 years, cash flow support through the tax system to businesses, and AUD4bn for a JobMaker Hiring Credit to incentivise businesses to employ 16-35 year olds.

Real GDP is forecast to contract by 1½% in 2020/21 on top of a 0.2% decline in 2019/20, before growing by 4¾% in 2021/22. In calendar year 2020, real GDP is forecast to fall by 3¾%, before growing by 4¼% in 2021. The easing of containment measures has resulted in a notable pick-up in economic activity, notwithstanding the renewed outbreak of the virus in Victoria, which has resulted in a slowdown in the pace of recovery in that state. The unemployment rate is now forecast to reach 8% of the labour force in the December quarter, compared to a previous forecast of 9¼%.

The cash balance is expected to be a deficit of AUD213.7bn (11.0% of GDP) in 2020/21, before improving gradually over the forecast period, reaching a deficit of AUD66.9bn (3.0% of GDP) in 2023/24. Gross debt is forecast to reach 44.8% of GDP at the end of June 2021, increasing to 51.6% of GDP by the end of June 2024.

Date Key upcoming NZ data Previous
12 Oct Migration (monthly) + 1,029
13 Oct Electronic Cards - 0.8%
13 Oct Rental Price Indexes + 0.2%
13 Oct Food Price Indexes + 0.6%
13 Oct BNZ PMI's 50.7

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, Annual Change

Source: Electricity Authority

Retail Spending

Retail Spending

Source: Paymark and Verifone data via Data Ventures

Jobseeker and Income Support Recipients

Jobseeker and Income Support Recipients

Source: MSD

Wage Subsidy (jobs supported)

Wage Subsidy (jobs supported)

Source: MSD

High-Frequency Indicators (Global)

Trade Weighted Index

Trade Weighted Index (17 Country)

Source: RBNZ

Volatility Index

Volatility Index

Source: Haver

US Activity and Equities

Weekly Economic Index, S&P 500 Index

Sources: Federal Reserve Bank of New York, Haver

Labour Markets

Unemployment and Participation Rates

Source: Haver

COVID-19 Cases

Daily New COVID-19 Cases

Sources: World Health Organisation/Haver

World Commodity Prices

ASB Commodity Indexes

Source: ASB

Tables

Quarterly Indicators   2019Q1 2019Q2 2019Q3 2019Q4 2020Q1 2020Q2
Real Production GDP1 qpc 0.4 0.1 0.7 0.5 -1.4 -12.2
  aapc 3.1 2.8 2.7 2.3 1.5 -2.0
Current account balance (annual) %GDP -4.0 -3.8 -3.8 -3.4 -2.9 -1.9
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 -0.1 0.6 0.4 0.3 1.1 -0.3
Unemployment rate1 % 4.2 4.0 4.2 4.1 4.2 4.0
Participation rate1 % 70.6 70.5 70.7 70.4 70.7 69.9
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   Apr 20 May 20 Jun 20 Jul 20 Aug 20 Sep 20
Merchandise trade balance (12 month total) NZ$m -2,393 -1,274 -1,129 51 1,340 ...
Dwelling consents - residential apc -16.5 -4.4 20.4 -0.8 -3.6 ...
House sales - dwellings apc -77.2 -44.3 11.7 28.6 24.8 ...
REINZ - house price index apc 8.6 7.0 7.6 9.3 10.1 ...
Estimated net migration (12 month total) people 87,837 85,359 82,649 76,191 ... ...
ANZ NZ commodity price index apc 0.9 -1.3 -2.9 0.2 -3.9 -6.4
ANZ world commodity price index apc -9.2 -8.1 -5.7 -1.5 -2.8 -3.0
ANZBO - business confidence net% -66.6 -41.8 -34.4 -31.8 -41.8 -28.5
ANZBO - activity outlook net% -55.1 -38.7 -25.9 -8.9 -17.5 -5.4
ANZ-Roy Morgan - consumer confidence net% 84.8 97.3 104.5 104.3 100.2 100.0
Weekly Benefit Numbers   28 Aug 4 Sep 11 Sep 18 Sep 25 Sep 2 Oct
Jobseeker Support number 197,227 198,929 200,776 202,274 203,389 204,116
Work Ready number 127,615 129,013 130,318 131,509 132,368 132,836
Health Condition and Disability number 69,612 69,916 70,458 70,765 71,021 71,280
COVID-19 Income Relief Payment number 24,811 18,608 16,236 14,573 12,884 11,888
Full-time number 22,221 16,609 14,485 12,996 11,487 10,581
Part-time number 2,590 1,999 1,751 1,577 1,397 1,307
Daily Indicators   Wed
30/9/20
Thu
1/10/20
Fri
2/10/20
Mon
5/10/20
Tue
6/10/20
Wed
7/10/20
NZ exchange and interest rates5              
NZD/USD $ 0.6603 0.6619 0.6639 0.6646 0.6654 0.6582
NZD/AUD $ 0.9253 0.9248 0.9264 0.9253 0.9252 0.9264
Trade weighted index (TWI) index 71.6 71.7 71.8 71.9 71.8 71.3
Official cash rate (OCR) % 0.25 0.25 0.25 0.25 0.25 0.25
90 day bank bill rate % 0.31 0.29 0.29 0.27 0.28 0.28
10 year govt bond rate % 0.46 0.52 0.50 0.50 0.54 0.50
Share markets6              
Dow Jones index 27,782 27,817 27,683 28,149 27,773 28,303
S&P 500 index 3,363 3,381 3,348 3,409 3,361 3,419
VIX volatility index index 26.4 26.7 27.6 28.0 29.5 28.1
AU all ords index 6,009 6,069 5,983 6,135 6,164 6,240
NZX 50 index 11,747 11,813 11,823 11,898 11,975 12,016
US interest rates              
3 month OIS % 0.09 0.09 0.09 0.09 0.09 ...
3 month Libor % 0.23 0.23 0.23 0.22 0.23 ...
10 year govt bond rate % 0.69 0.68 0.70 0.78 0.76 0.81
Commodity prices6              
WTI oil US$/barrel 40.22 38.72 36.90 39.12 40.52 39.95
Gold US$/ounce 1,887 1,902.00 1,903.05 1,909.60 1,913.40 1,884.50
CRB Futures index 406 404.12 403.62 405.05 405.36 406.40

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

[9.6%
share of
total goods
exports]
GDP1 qpc     -1.3       -9.0      
Industrial production1 mpc 0.1 -4.4   -12.9 1.0 6.1   3.5 0.4 ...
CPI apc 2.3 1.5   0.3 0.1 0.6   1.0 1.3 ...
Unemployment rate1 % 3.5 4.4   14.7 13.3 11.1   10.2 8.4 7.9
Employment change1 000s 251.0 -1373.0   -20787.0 2725.0 4781.0   1761.0 1489.0 661.0
Retail sales value apc 4.5 -5.6   -19.9 -5.6 2.2   2.4 2.6 ...
House prices2 apc 3.5 3.8   3.8 3.6 3.5   3.9 ... ...
PMI manufacturing1 index 50.1 49.1   41.5 43.1 52.6   54.2 56.0 55.4
Consumer confidence1,3 index 132.6 118.8   85.7 85.9 98.3   91.7 86.3 101.8
Japan
[6.1%]
GDP1 qpc     -0.6       -7.9      
Industrial production1 mpc -0.3 -3.7   -9.8 -8.9 1.9   8.7 1.7 ...
CPI apc 0.5 0.4   0.2 0.0 0.1   0.4 0.1 ...
Unemployment rate1 % 2.4 2.5   2.6 2.9 2.8   2.9 3.0 ...
Retail sales value apc 1.6 -4.7   -13.9 -12.5 -1.3   -2.9 -1.9 ...
PMI manufacturing1 index 47.8 44.8   41.9 38.4 40.1   45.2 47.2 47.7
Consumer confidence1,4 index 38.2 31.1   21.3 24.1 28.5   29.5 29.3 32.8
Euro area
[5.5%]
GDP1 qpc     -3.7       -11.8      
Industrial production1 mpc -0.1 -11.6   -18.0 12.2 9.5   4.1 ... ...
CPI apc 1.2 0.7   0.3 0.1 0.3   0.4 -0.2 ...
Unemployment rate1 % 7.3 7.2   7.4 7.6 7.8   8.0 8.1 ...
Retail sales volume apc 2.5 -8.2   -19.3 -2.6 1.4   -0.1 3.7 ...
PMI manufacturing1 index 49.2 44.5   33.4 39.4 47.4   51.8 51.7 53.7
Consumer confidence5 index -6.6 -11.6   -22.0 -18.8 -14.7   -15.0 -14.7 -13.9
United
Kingdom

[2.7%]
GDP1 qpc     -2.5       -19.8      
Industrial production1 mpc 0.3 -4.3   -20.4 6.2 9.4   5.2 ... ...
CPI apc 1.7 1.5   0.8 0.6 0.6   1.1 0.2 ...
Unemployment rate1 % 4.0 3.9   3.9 3.9 3.9   4.1 ... ...
Retail sales volume apc -0.2 -6.1   -22.7 -13.0 -1.6   1.4 2.8 ...
House prices6 apc 2.3 3.0   3.7 1.8 -0.1   1.5 3.7 5.0
PMI manufacturing1 index 51.7 47.8   32.6 40.7 50.1   53.3 55.2 54.1
Consumer confidence1,5 index -6.2 -8.2   -22.7 -23.7 -21.0   -16.6 -16.6 -17.9
Australia
[15.8%]
GDP1 qpc     -0.3       -7.0      
CPI apc     2.2       -0.3      
Unemployment rate1 % 5.1 5.2   6.4 7.1 7.4   7.5 6.8 ...
Retail sales value apc 5.7 9.4   -8.9 5.5 8.6   12.8 5.4 ...
House Prices7 apc     8.1       6.6      
PMI manufacturing1 index 44.3 53.7   35.8 41.6 51.5   53.5 49.3 46.7
Consumer confidence8 index 95.5 91.9   75.6 88.1 93.7   87.9 79.5 93.8
China
[24.3%]
GDP apc     -6.8       3.2      
Industrial production apc -13.5 -1.1   3.9 4.4 4.8   4.8 5.6 ...
CPI apc 5.2 4.3   3.3 2.4 2.5   2.7 2.4 ...
PMI manufacturing1 index 35.7 52.0   50.8 50.6 50.9   51.1 51.0 51.5
South
Korea

[3.0%]
GDP1 qpc     -1.3       -3.2      
Industrial production1 mpc -3.7 4.9   -6.6 -7.0 7.1   1.9 -0.7 ...
CPI apc 1.1 1.0   0.1 -0.3 -0.0   0.3 0.7 1.0

(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: 
Friday, 9 October 2020