Breakfast briefing; OECD growth momentum leaking away

Business / news

US retail momentum slows, productivity tanks; US cattle farmers retreat; Japanese machine tool orders dip; Aussie confidence diverges; OECD glum; UST 10yr 2.80%; gold and oil up; NZ$1 = 62.8 USc; TWI-5 = 71.2

10th Aug 22, 7:25am by David Chaston

Here's our summary of key economic events overnight that affect New Zealand, with news rapid wage growth is heaping pressure on American inflation, and undermining their labour productivity.

But first, last week may have been a turning point for American retail sales with the weekly Redbook survey reporting an unusual softening. It's only one week, but this result is right out of range and one we should keep an eye on.

Meanwhile, inflation and the pandemic is really hurting American labour productivity. Unit labour costs surged by more than +10% from the same June quarter a year ago and well above analyst forecasts. The data for Q1 was revised up to almost +13%. The Q2-2022 data reflects some chunky movements, a +5.7% jump in hourly compensation and a -4.6% fall in productivity. It put this into historic perspective, American unit labour costs increased +9.5% over the full prior year, the biggest rise in 40 years.

All eyes now turn to the American CPI data for July which is now expected to come in at 8.7% and lower than the 9.1% reported for June.

Separately, there are problems on American cattle farms. Drought and high feed costs are undermining viability for both pasture ranches and feedlots and herds are being culled, a shift that will tighten beef supplies for years ahead.

There was another very well supported US Treasury bond tender this morning, for their 3 year maturity. It went for a median yield of 3.14% which was up on the 3.04% at the prior equivalent event a month ago.

In Japan, machine tool orders slipped in July from June and have been reported up only +5.5% from year-ago levels. That is sharply lower than the June gain of +17% year-on-year.

In Australia, the Westpac-MI consumer confidence survey found slipping sentiment - not huge from June, but it is the ninth consecutive monthly decline they have recorded. Consumers may be drooping, but business sentiment actually improved in July, according to the widely-watched NAB survey. It's an unusual and unexpected rally in the face of headwinds from inflation and rising interest rates, as well as a deteriorating global economic outlook.

The OECD is reporting that historically high inflation, low consumer confidence and declining stock markets in the main economies are showing a global loss of growth momentum. The latest assessment for the giant US economy has their Q3 expansion running at a very tepid +1% currently.

The UST 10yr yield starts today at 2.80% and +3 bps higher than this time yesterday. The UST 2-10 rate curve is slightly more inverted today, now at -48 bps and their 1-5 curve is much less inverted at -31 bps. Their 30 day-10yr curve is now at +60 bps and marginally flatter than this time yesterday. The Australian ten year bond is little-changed at 3.22%. The China Govt ten year bond is unchanged at 2.76%. And the New Zealand Govt ten year will start today down at 3.28% and down -9 bps from this time yesterday.

Wall Street is in its Tuesday trade with the S&P500down -0.4% from this time yesterday. Overnight, European markets were mostly lower by up to -1% but London was little-changed. Yesterday, Tokyo finished up its Tuesday trade down -0.9%, Hong Kong was down -0.2% with a late sell-off, and Shanghai was up +0.3% with a late burst. The ASX200 ended its trade yesterday up another +0.1% and the NZX50- ended up +0.2%.

The price of gold will open today at US$1794/oz which is up another +US$6/oz from this time yesterday.

And oil prices start up +50 USc/bbl from this time yesterday at just on US$90/bbl in the US, while the international Brent price is now just on US$96/bbl. It is not a huge change but it could be a significant one. Americans are now expected to use less petrol this year.

The Kiwi dollar will open today at 62.8 USc which is little-changed from this time yesterday. Against the Australian dollar we are up a little at 90.2 AUc. Against the euro we are marginally softer at 61.5 euro cents. That all means our TWI-5 starts today at just on 71.2 and still in the tight range we have been in for the past month.

The bitcoin price has moved down from this time yesterday, down -3.8% to US$23,033. Volatility over the past 24 hours has been moderate at just over +/-2.6%.

The easiest place to stay up with event risk today is by following our Economic Calendar here ».

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41 Comments

by Tee | 10th Aug 22, 7:46am 1660074380

El Salvador say that Bitcoin drew in tourists.

by Pa1nter | 10th Aug 22, 7:53am 1660074807

What, to check out all the places it's not being used?

Indeed, a study by the US National Bureau of Economic Research found that only about 20 per cent of those who downloaded the wallet continue to use it, but they too “do not engage with the app intensively”, and the NBER concludes that “usage of bitcoin for everyday transactions is low and is concentrated among the banked, educated, young and male population”.

This disproves the chimera that introducing bitcoin would promote “financial inclusion”. Indeed in April, just 1.61 per cent of remittances were sent through digital wallets, according to El Salvador’s Central Reserve Bank, thus proving that senders prefer established channels.

by Mrs The Point | 10th Aug 22, 10:04am 1660082668

Bitcoin Average Transaction Fee is at a current level of USD$1.478. Hardly going to replace eftpos with that level of transaction fee.

by Baywatch | 10th Aug 22, 10:26am 1660083977

Love to see any link to support that ...?

by Mrs The Point | 10th Aug 22, 10:33am 1660084422

https://ycharts.com/indicators/bitcoin_average_transaction_fee

Is it not correct?

by Pa1nter | 10th Aug 22, 10:26am 1660083999

A lot of traditional banks' charges exist to satisfy regulations.

But if it's value plummets in an inflationary environment, it's not a hedge against inflation.

And it's transaction costs are high, it's not that cheap or efficient.

Then it's digital stamp collecting.

by Shamino | 10th Aug 22, 8:19am 1660076359

Could be working?

"However, in 2021 tourists are slowly gaining confidence in traveling with biosecurity measures, and as of July 2021, the total visitation of Salvadorans to the U.S. reached 97,392, a 223.8% increase compared to the previous year."

by nktokyo | 10th Aug 22, 7:50am 1660074603

Last year vs this numbers will be weird for a while yet due to the lockdowns, shut downs and state of emergencies that were rippling around the world.

by JustAnOpinion | 10th Aug 22, 7:55am 1660074959

Rolling back the three strikes legislation is a momentous occasion for Labour. A manifesto pledge actually kept. <golf clap>

by Uninterested | 10th Aug 22, 8:12am 1660075924

This is soft on crime personified.

by murray86 | 10th Aug 22, 8:30am 1660077038

Yes and no. The problem is it is shown to not be a deterrent. What it does do however, is keep proven violent people in prison longer. Whether "longer" is long enough is another debate. There are other means to achieve this already in law, but in front of a judge who is usually looking at isolated incidents and with a history of being light on crime, it can be a tough bar to reach to achieve longer sentences for persistently violent people. Judges seldom get to see the victims, but get a close scrutiny of the perpetrator so their view is easily understood to be a bit slanted. This is ambulance or prison at the bottom of the cliff.

We would all be better off if our Government were to concentrate on policies that delivered socio-economic benefits much more fairly.

by Noncents | 10th Aug 22, 9:04am 1660079062

Prison will never be a deterrent. The point is to remove individuals so that the community isn't threatened.

Yes it is an ambulance at the bottom of the cliff, and yes, we need to sort the primary causes first.

But for the people who have clearly gone over the cliff, there is little other option. We don't have to be happy about incarcerating them, but it is a necessary requirement for a safer community. I am sick of reading headlines where x person with 50+ convictions has raped/murdered/molested another poor innocent person because they weren't locked away.

by KH | 10th Aug 22, 9:28am 1660080536

Excellent comment Noncents.

Yes, the point of prison is to keep certain people away from us. It's costly, but the cost of these people when running amok is orders of magnitude greater. They distroy in every dimension, including the health system, on the roads etc.

We would all wish it to be different, and the non prison approaches work for some.

But there is the hard core who evade those approaches, which is what three strikes was about. On the other side of a fence from us.

by RickStrauss | 10th Aug 22, 9:58am 1660082322

If we all wish it to be different, it's surprising we often vote against fences at the top of the cliff while voting for punitive ambulances at the bottom. It seems like an emotional response more than a logical one. Anger over sense. It must cost us more to foster crime then punish it heavily rather than reducing the causes of crime in the first place.

Much as it cost us a huge amount in healthcare costs over the last decades to allow landlords to rent out unhealthy homes more profitably. We create ready recruits for gangs and property crime by cultivating housing poverty, but then we want to spend massive amounts on incarcerating people instead of addressing antecedent factors?

Seems like investing our money incredibly unwisely.

If we are to evaluate by cost to society, that would suggest we should imprison more people for financial crime, labour abuse etc too.

by Mannering | 10th Aug 22, 10:38am 1660084699

Yeah Rick. Wait until you or yours get assaulted in your 82nd year by a young Maori woman who, according to press reports, after being found guilty of grevous bodily harm resulting in broken bones in your face, is given a two week home detention sentence after you have been hospitalised and traumatised by her. But then, I guess she is just a misunderstood victim of colonialism and paternalistic repression - and you are white anyway. Poor kid.

My 76 year old main squeeze is living in fear because the number of break ins and assaults in her area in Central Auckland. Police say that this type of crime, like ram raids, has rocketed, but they just do not have the resources to handle the situation - and if they do catch the culprit "who is of the wrong race" nothing much will happen anyway. According to her, the whole neighbourhood is, like her place, becoming fortified and a boon to the security industry. Wow ! A boost to GDP !

by RickStrauss | 10th Aug 22, 11:03am 1660086218

I have not endorsed violence or policies that create it or enable it. I have questioned why we are prone to voting for policies that have created and continue creating this cost to society.

I have already lived in developing countries and watched how they resort to a combination of punitive measures and hiding in gated subdivisions from the problems we create. It makes me wonder - why are we voting to head in that direction? Create the problems and hide from them...

Society was not always like this, even a few decades ago, and most of our poverty - according to recent reports from the sectors dealing with it - is housing poverty.

by Noncents | 10th Aug 22, 11:22am 1660087330

Donations not votes determine the outcomes, and corporates don't care about society.

by blobbles | 10th Aug 22, 11:42am 1660088523

Exactly, prevention is far better and cheaper than dealing with the outcomes. And we could influence it hugely by hitting youth right when they are vulnerable. Once they leave school they should have 3 options:

Military service
Higher Education (unis/polytechs/trade schools)
Approved government services for volunteering in conservation/volunteer work with a side helping of "how to get a job training" (these used to be community based conservation corp programs)
Approve Maori cultural community provider programs with similar volunteering structure

Other countries do similar and don't have anywhere near the issues we do. Take the Germany/Israels of the world.

Additionally, it's clear youth unemployment is a massive problem. We also need to incentivise firms and young people to get into work and employers to employ them. So we should give the employer and employee half the employees tax back for the first couple of years of employment. Should apply to full time work for anyone coming out of the above programs. Even if some employers became revolving doors for this, at least young people are coming out the other side with work experience.

by Noncents | 10th Aug 22, 12:35pm 1660091716

Miltiary service definitely ticks a lot of boxes. They are housed, fed, and kept busy. Deprivation in those three areas are usually the biggest drivers of crime.

It wont suit everybody, but the rest of the stuff can all be done after a year of service.

We could then use the military for more peaceful "Civil" Defence type projects and volunteering.

by profile | 10th Aug 22, 9:30am 1660080606

Murray86 - At an individual level if there is no deterrent effect why do so few first strikers go on to become third strikers?

"From June 2010 (when the law first came into effect) until September 2018, New Zealand offenders received 10,433 first strikes, 338 second strikes and 6 third strikes.

...However, in comparison with second strikeable offences committed before the law came into effect there has been a drop in the number of second strike offences since the law’s implementation."

https://www.justice.govt.nz/assets/Documents/Publications/Three-Strikes…

by murray86 | 10th Aug 22, 9:34am 1660080892

isn't the fact that it was not a deterrent the basis of the law being repealed? That's what I read, and didn't dig deeper.

by profile | 10th Aug 22, 2:58pm 1660100310

Labour rely on their base not digging any deeper and just repealed on ideological whim.

by dumbthoughts | 10th Aug 22, 10:01am 1660082461

Excellent comment, I agree 100%.

I have a few police officers as friends, and I'm still shocked when they tell me over Friday beers just how many previous convictions some of their "customers" have - particularly for violent offences or serious property crime.

It's not uncommon for an individual to have dozens of prior convictions and arrests.

I'm sure almost all of them had bad upbringings. I'm sure almost all of them are victims in the sense that had they enjoyed a better home environment, better education, more opportunities, less prejudice etc, they would have been less likely to start a life of crime. That's why we need to try and solve these problems and do work to prevent the causes of crime.

However, that doesn't change the fact that there is a "irredeemable" criminal element in society who are a menace to the rest of us, and we deserve protection from them - and the best protection comes from having them locked up and kept away.

At the end of the day, when you go out and violently rob yet another old pensioner, at that point in time - at least as far as I'm concerned - you're no longer a victim. The victim of your crime is the victim, and others deserve to be protected from being your next target.

Whatever bad happened to you in your life doesn't give you the right to kick someone's head in for the umpteenth time, because they looked at you the wrong way in the queue for the pub.

Once you've racked up 50+ convictions, you're unlikely to change.

We need to do a better job at trying to prevent people becoming criminals, reforming them early on in the piece, but then also being honest about the fact that some leopards cannot change their spots (or at least the cost to do so is too great) and therefore they need to be prevented from harming the rest of us.

Prison needs to be seen for what it is for this type of criminal - a necessary evil that prevents worse evil from taking place.

by AdamJay1990 | 10th Aug 22, 8:57am 1660078639

The American-style three strikes rule did nothing to prevent crime while removing the ability of judges to weigh both aggravating and mitigating circumstances in sentencing. It is pretty much universally panned by anyone in the legal profession. The fact that National and Act want to bring it back highlights their propensity for performative policy rather than evidence based policy.

by GV 27 | 10th Aug 22, 9:49am 1660081797

Would you care to be a bail address for some second and third strikers?

by dumbthoughts | 10th Aug 22, 10:03am 1660082613

(edit - replied to the wrong comment)

by bw | 10th Aug 22, 8:41am 1660077676

Best we all stock up on toilet paper this morning?

"Workers locked out at Kawerau Purex toilet paper manufacturer"

And possibly the first of many such actions to come.

by Pa1nter | 10th Aug 22, 8:40am 1660077646

Everyone should've had a bidet installed over the past 24 months, would've already paid for itself.

by Yvil | 10th Aug 22, 9:59am 1660082391

Haha, I actually have installed one over my toilet, it's brilliant!

by powerdownkiwi | 10th Aug 22, 1:03pm 1660093436

Perhaps more need?

by Advisor | 10th Aug 22, 8:58am 1660078725

Adrian Orr might personally thank the Swedish parent company for not offering wage increases to the tune of CPI for its 200 workers.

The authorities don't mind the fact that the TP manufacturer is raking in bumper profits since 2020 because much of that will be wired to Sweden so won't be inflationary to the NZ economy.

by Mannering | 10th Aug 22, 10:42am 1660084922

Don't worry too much bw, in a recent trip to a supermarket for such supplies I found that much of the product is Australian.

by Pa1nter | 10th Aug 22, 9:47am 1660081643

Just turned up in my email. I haven't read through the details, but it's an interesting development.

Applications are now open for the Accredited Employer Work Visa (AEWV). The AEWV is a new temporary work visa that replaces six temporary work visas, including the Essential Skills Work Visa and Talent (Accredited Employer) Work Visa.

The AEWV is designed to ensure New Zealanders are first in line for jobs. Where genuine skills shortages exist, accredited employers can hire skilled migrant workers. The AEWV will reduce the risk of migrant exploitation and give more certainty to migrants about the role they’re applying for.

As part of the new AEWV, employers must be accredited and have completed a job check before they are able to hire a temporary migrant worker.

by Advisor | 10th Aug 22, 10:18am 1660083532

Doesn't go far enough but good on the government for getting this across the line amid all the pressure from the cross-bench and business lobbies.

Meanwhile, Luxon kept calling on the government to open the borders faster and do more to attract the "best" migrants and, in the same statement, went on to give the example of bring more workers who want to come here to work in kiwifruit [picking] or tourism.

Then in another statement last weekend said he welcomes needed migrants, but has a vision that first and foremost serves the common cause of all New Zealanders.

I pity his secretary for having to follow this man's train of thought on a daily basis.

by Pa1nter | 10th Aug 22, 10:31am 1660084319

If we can't get people to pick kiwifruit for $60 an hour, then kiwifruit picking must be a highly specialised skill.

Who'd have thought "turn up everyday and do monotonous physical labour" would pay more than a teacher.

by Carlos67 | 10th Aug 22, 11:10am 1660086646

Its not the skill level its the physical level that is required. I used to pick strawberries as a kid on contract, it was my best paying job ever considering my age and the pay. Sure you had an advantage if you could simultaneously pick with both hands as a "Skill" but it was very physical on your back and knees and you were in the full summer heat so most people simply could't hack it. If it is indeed paying that much which I doubt, then physically its just to hard for most people so it doesn't matter if it was $100 an hour.

by Advisor | 10th Aug 22, 11:15am 1660086948

Those high payrates have more to do with short-term supply-demand imbalance due to a lack of holidaymakers in NZ to fill those jobs than actual skill levels. The job prospects are seasonal and anyone already in NZ with a good work ethic will already have a decent paying stable job in the current environment.

Moreover, those payrates will reduce drastically next season provided international students and holidaymakers arrive in droves.

by Pa1nter | 10th Aug 22, 1:29pm 1660094988

Even with open borders decent Ag workers should be earning in the mid $40 range.

As Carlos has alluded, it's just not desirable work for a lot of people. If I can get $21 pushing trolleys round a carpark why work my fingers to to bone, at any money.

by Grattaway | 10th Aug 22, 11:37am 1660088239

Interesting development maybe but ultimately futile and yes virtue signaling

One of my first jobs many years ago was applying to bureaucrats in Wellington for the right to import spare parts and machinery. I had to show that what was needed wasnt available in NZ and just about everything imported needed a permit - this was a weekly task almost a standard letter

and yes we did try manufacturing locally but it was difficult. Many a fortune was made from overpriced local manufacture that kept imports out - Todd and mitsubishi come to mind

Slow and clumsy and expensive for our customers

So now my last job could be doing the exact same thing for skills. We already have a skill shortage but seem determined to make it worse

by murray86 | 10th Aug 22, 11:08am 1660086480

Here's a question; the Attorney General, David Parker has stated that Golriz Gharhraman's bill on electoral integrity breaches the Bill of Rights because it caps political donations at $35,000 per annum. Just the other day i read an article that basically stated the big problem in the US is that the mega wealthy to all intents buy votes through their 'donation'. Should the cap in this bill be raised? The article in the NZ Herald indicates that most democratic countries have lower caps (Canada's is NZ$2080).

by blobbles | 10th Aug 22, 12:38pm 1660091925

If that's the case, I would suggest changing the Bill of Rights, rather than the other way around. A functional, strong democracy is one where plutocrats don't control everything anyway via vote/candidate buying. The US is a case in point, the corruption throughout their political establishment is enormous.