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
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
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
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
…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
…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
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
…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
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)
Source: Waka Kotahi NZ Transport Agency
Source: Waka Kotahi NZ Transport Agency
Source: Electricity Authority
Source: Paymark and Verifone data via Data Ventures
Jobseeker and Income Support Recipients
Wage Subsidy (jobs supported)
High-Frequency Indicators (Global)
Trade Weighted Index
US Activity and Equities
Sources: Federal Reserve Bank of New York, Haver
Sources: World Health Organisation/Haver
World Commodity Prices
|Real Production GDP1||qpc||0.4||0.1||0.7||0.5||-1.4||-12.2|
|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|
|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|
|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|
|NZ exchange and interest rates5|
|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|
|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|
|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|
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|
|Retail sales value||apc||4.5||-5.6||-19.9||-5.6||2.2||2.4||2.6||...|
|Retail sales value||apc||1.6||-4.7||-13.9||-12.5||-1.3||-2.9||-1.9||...|
|Retail sales volume||apc||2.5||-8.2||-19.3||-2.6||1.4||-0.1||3.7||...|
|Retail sales volume||apc||-0.2||-6.1||-22.7||-13.0||-1.6||1.4||2.8||...|
|Retail sales value||apc||5.7||9.4||-8.9||5.5||8.6||12.8||5.4||...|
(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