Here's our summary of key economic events overnight that affect New Zealand, with news the American employed labour force has risen to a new record high.
In the US, the headline non-farm payrolls data reported a +315,000 rise, pretty much as analysts had anticipated. But is was less than the outsized July gain. The jobless rate ticked up to 3.7% on a higher participation rate. This is the seasonally adjusted data, but the 'actual' data is very similar this month (+309,000) taking their employed labour force to just under 153 mln and its highest ever.
Average hourly wages rose +5.2% from a year ago.
It is hard to image a recession when employment and wage growth is strong. The Fed will be emboldened to push ahead against inflation knowing their labour market remains tight despite all the inflationary hurdles. Equity markets retreated on this thought.
But July factory orders slipped when they weren't expected to. They fell -1% in July from June, but remain +11.6% higher than year-ago levels
But there is evidence supply-chain pressures are easing, including for carmakers. Ford has been posting strong year-over-year gains on climbing electric-vehicle sales and improved deliveries of trucks and SUVs. The company’s EV sales increased fourfold from a low base a year earlier, while sales of petrol-engine vehicles rose by a quarter.
In Canada, Vancouver is reporting that sales of houses are down -45% from year-ago levels in August, and prices are now dropping month-on-month.
In Korea, inflation seems past its peak. It rose 5.7% year-on-year in August, slowing from a 24-year high of 6.3% in July and below the consensus forecast. Energy and food prices have started declining from elevated levels. The country’s annual inflation rate also slowed for the first time since January and marked the slowest pace in three months.
According to GDP figures from the IMF, India has now grown to be the world's fifth largest economy, displacing the UK.
The most dramatic overnight data has been from the EU. Their producer price index surged +3.7% in July alone, to be up +38% in a year. That means it is accelerating at a truly stunning pace. But even among that, one country stood out - Ireland, who reported that their producer prices rose +26% in one month! to be +48% higher than a year ago. "Interesting" statistical data collection there. Ignoring the crazy Irish data, Italy (+6.5%) and Germany (+5.6%) led the month-on-month rises by their large economies, whereas Spain (+0.0%) and France (+1.6%) were the most restrained of the remaining large economies.
Meanwhile, Gazprom said it "found a new fault" in its pipelines to Europe and is shutting down supply semi-permanently. That will no doubt save their senior executives from accidentally falling out a high-rise window. (Usually, windows that don't open in the first place.) The EU has adopted price caps on buying Russian energy; and Russia has said it will stop selling to any country that adopts price caps. This is motivating a very fast shift away from fossil fuels in the region, so may have a long-term positive effect. But the short-term pain will be acute, even is Europe seems willing to accept those consequences.
Global food prices retreated again in August to their lowest level in seven months, due to a broad-based fall, Cereal prices went down -1.4%, led by a -5.1% drop in international wheat prices on improved production prospects, especially in Canada, the US and Russia. Dairy prices fell -2% and meat prices fell -1.5% from the prior month.
In Australia, all eyes are on their 'jobs summit', the incoming Governments initiative and a nod to their supporters. It seems likely that many low-paid jobs will get big increases. There is a back-to-the-future muscular move underway with more aggressive strike action. The uncertainties might see more production moved offshore including to New Zealand, similar to what we saw in previous periods of Australian labour strife. But public sector unions seem especially aggressive, including those for public transport. That will trap them in higher public deficits. The upshot from all of this may well mean a move higher for the NZD vs the AUD over the next few years and reversing its recent fall.
The UST 10yr yield starts today at 3.19% and up +5 bps from this time yesterday but falling from the 3.30% level it hit before the US data was released. The UST 2-10 rate curve is much less inverted at -21 bps. Their 1-5 curve is less inverted too at -17 bps. And their 30 day-10yr curve is slightly flatter at +73 bps. The Australian ten year bond is +2 bps higher at 3.64%. The China Govt ten year bond is little-changed at 2.65%. And the New Zealand Govt ten year will start today at 4.01%, and up +4 bps to near a two month high.
Wall Street ended down -1.1% in late Friday trade as they realise today's jobs data will steel the Fed. That caps a -2.7% weekly loss. Overnight, European markets were all sharply higher by about +2% but Frankfurt surged +3.3%. Yesterday Tokyo and Shanghai ended their week flat in Friday trade, but Hong Kong fell -0.7% to end a weak week. The ASX200 fell -0.3% on Friday for a weekly loss of -3.9%. The NZX50 however rose +0.2% yesterday and ended the week up the same +0.2%.
The price of gold will open today at US$1714/oz and unchanged from this time yesterday, but down -US$24 in a week.
And oil prices start today down -US$3.50/bbl at just over US$86.50/bbl in the US while the international Brent price is now just under US$93/bbl. A week ago these prices were US$93/bbl and US$99/bbl respectively so a sharpish -7% fall in a week. There was also a fall in the North American rig count last week, and there has been no net rise since late June.
The Kiwi dollar will open today at 61.2 USc and unchanged from this time yesterday. From a week ago it is virtually unchanged as well. From a month ago it is down -3.3%. Against the Australian dollar we still up +½c at 89.8 AUc and up +0.8% in a week. Against the euro we are up to 61.4 euro cents and little-changed in a week. That all means our TWI-5 starts today up +20 bps at 70.7 and up +20 bps for the week.
The bitcoin price is now at US$19,967 and virtually unchanged from this time yesterday. But it is -3.5% lower than this time last week. Volatility over the past 24 hours has been modest at just on +/- 1.7%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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67 Comments
I am more convinced than ever that the NZ economy will have a big slump next year.
With the Fed emboldened to hike higher, that will also embolden the RBNZ. But the RBNZ will overshoot. Come May unemployment will be surging higher. The OCR will then be cut and the NZD will plummet.
So what you are saying is that the RBNZ directly controls interest rates, but indirectly controls the exchange rate. What if the RBNZ returned to fixing the NZ$ again, to stop the NZ$ plummeting? The alternative might be to scrap the OCR - let everything find its own natural level.
That's not a prediction, just a thought.
Why will lowering the OCR, a little (I am not talking big cuts back towards 0%) destroy the economy? That’s patent nonsense.
what *will* destroy the economy are continued hikes towards 4.5%.
Assuming the OCR is 4% by end of this year, a couple of small cuts back towards 3.25% will mean little either way.
Banks are stress testing at over 7.5%. If the OCR goes to 4% they will be stress testing at well over 8%.
This is killing demand for new housing.
At the same timing, funding for development is getting tighter and more costly.
Residential construction contributes directly and indirectly to around 15-20% of employment.
If someone can explain to me how an economic train wreck, that will worsen the higher the OCR goes, is not coming then I am all ears….
Quite possible that the government picks up some of the slack. They intend to build 20k state houses in Mt Roskill and Mangere alone, that could be brought forward. At the moment the government can’t build as quick as they would like due to labour and material shortages.
I’m surprised how many people think the reserve bank needs to take specific action to save just one industry (property) to the detriment of our overall economy. Got news for you: all Reserve Bank governors consider inflation to be the root of all evil and will do everything to bring it down. They *want* people to lose their jobs. That’s the whole point! You think our inflation is bad now; I imagine that may double if the reserve bank pauses or starts reversing interest rates now as our currency will slide further faster and all those things we import (and there is a lot) will cost more very quickly.
Yes it's a conflict but the requirement is sustainable full employment which is abiguios. Inflation is defined 1-3%.
I wouldn't consider employment trumping Inflation but the mandate of financial stability would. If the banking system enters distress then anything goes
https://www.bnz.co.nz/assets/markets/research/20220517-RBNZ-Monetary-Po…
The Reserve Bank’s task is clear. At its most basic level it has to get current annual inflation of around 7.0% down to 2.0% and it will require the unemployment rate, now 3.2%, to rise to around 4.5% to meet its maximum sustainable employment objective.
That would be a reasonable shift in employment numbers.
If it wasn't for the housing crisis it would be easy to argue that residential construction has become too large a part of the economy - it's domestically bound, has low productivity and a massive carbon footprint. It's also been one of the main contributors to inflation increases.
Pity idiot governments decided to massively increase the population over the last decade, is there any party out there offering a population policy so we don't get in this situation again.
HM residential construction has hit a wall, house price’s are falling rapidly so overpriced compared to incomes, this was always going to happen and anyone with a large mortgage who over paid will be carrying debt for year’s. The downturn is around the world and we will be hit quite considerably.
what *will* destroy the economy are continued hikes towards 4.5%.
Why do you believe that? Are you affraid NZ will not be able to service their debt's?
According to data from Kiwibank, Mary Jo Vergara, domestic inflation has always been around 4%, even in the golden years leading up to the pandemic. Imported inflation, supported by a relative high NZD since the GFC, was able to suppress the total inflation below the famous 2%. Nowadays the NZD is valued considerably lower and therefore imported inflation will add to the domestic inflation, which is still consistent at 4%, towards a total inflation of 6% or even more going forward.
Why do I believe that?
The answer is very simple. A large chunk of our domestic economy is dependent on cheap credit.
I will put the question back to you - why do you think that a economy so dependent on cheap credit will prove resilient in the face of soaring increases in the cost of credit?
I guess I am a bit over trying to explain this.
Clearly most people here, for some reason, don’t think our economy is heavily dependent on cheap credit.
If that’s the case, then each to their own.
It’s very curious indeed.
All I can suggest is people might read more widely. Macrobusiness from Australia is a good place to start.
Don't take it the wrong way I'm genuinely interested. A agree with the supposition but mostly at a global scale. Zombie companies in the US come to mind. My position is that we need the down side to weed out the fat and inefficient leaving room for new opportunities and business to prosper.
Capitalist welfare has gone on too long and now is a time of change and reconing.
Back to NZ though. Out side of housing do you see business and government dept being problematic at an OCR of 4.5%, I would argue even housing can weather that storm before finacal stability is compromised. An OCR of 6% might be a different story which I think is possible but not probable
My central contention is pretty simple, and it goes like this:
- Around 20% of the domestic NZ economy is directly or indirectly dependent on the health of the residential construction sector
- This sector is looking very vulnerable, due to a wicked combination of rising input costs, rising costs of finance and falling property prices
- It’s demise will lead to significant increases in unemployment. Some buffer will be offered by the fact that the labour market is so tight
- the demise of this sector, given its significance, will generate multiplier effects in terms of spending through the rest of the economy
The sector is also in big trouble in Australia, which will limit the ability for unemployed kiwis to find work there.
It’s also a ticking time bomb in the USA. Rising interest rates don’t affect existing home owners so much there, but they will have a big impact on new starts in residential construction.
Have a look at this graph at the link below on NZ unemployment in the wake of the economic slump in NZ from 2006-2007. People forget that the NZ economy was slumping BEFORE the GFC in 2008, as a result of aggressive hikes to the OCR and the collapse of residential development funding ((through the collapse of mezzanine finance).
Unemployment rose to nearly 7%. We were only saved due to our ability to make big cuts to the OCR, and China’s boom times. The Christchurch rebuild also offered a ‘broken windows’ boost as well.
I am not saying this time is the same. But I can certainly see plenty of parallels.
https://www.statista.com/statistics/375266/unemployment-rate-in-new-zea…
Thanks
I agree. My sentiment is that this is a necessary part of the business cycle and therefore we have to let it run its course.
I believe to let inflation stay high to protect the excess and employment rate will only make things worse down the track.
Unfortunately the RBNZ over did it and then waited to long. People may say that's hind sight but it was very knee jerk in my opinion and there were obvious mistakes, now society has to suffer which typically will be those in need the most.
Maybe the next cycle will be managed with a more considered and tempered approach with corporate welfare not tolerated
The debt is very concentrated. Most people are not in debt (or have very little debt). There is a small section of society that holds a big chunk of the debt.
Unfortunately, it is that small, highly indebted, chunk of society that gets most of the attention. The media focus on them, the pollies focus on them, the rbnz focuses on them. Squeaky wheel.
Most of us will be just fine with higher interest rates.
These are old stats in the article linked below, but for some reason [... I won't mention the word "corruption" here, because it upsets some punters...] the rbnz has stopped releasing new stats on debt concentration. https://i.stuff.co.nz/business/money/104323467/reserve-bank-says-8-per-…
I am fairly certain that updated stats would show that debt is more concentrated than ever before.
Yes, higher rates are tough on the overindebted. Very sad and all that. But let's not pretend that higher rates will be a calamity for most, or even many, of us.
Nah I don't think so. For one it is election year. Secondly the borders are open. Thirdly the kiwi dollar is 61ish to the usd so boosting our all impt ag exports.
Do you know that there was 7 percent less beef volume exported but 31 percent greater income in the last year.
I am becoming less convinced. There is a good chance that low unemployment is structural with people deciding to permanently leave the workforce or retire. In that scenario inflation will continue to be a “problem” (I personally love it as it is inflating away our debt) and there won’t be a recession or a reduction in interest rates.
I was in the same camp as you, but now I think inflation will drop but not to within the RBNZ 1-3% target any time soon.
The RBNZ have little control over longer term interest rates, especially now that they have completely lost credibility, and the swap markets will simply ignore Orr, regardless of the future OCR movements, NZ recession or not. Therefore, medium and longer term interest rates will go higher and stay high for the foreseeable future in NZ, at the very least a couple of years, unless some unlikely miracle happens and inflation gets down to manageable levels both in US and in Europe.
It is hard to image a recession when employment and wage growth is strong.
Full-Time Employment Collapses As Multiple Jobholders Hit New All Time High
So what's going on here? The simple answer: Fewer people working, but more people working more than one job, a rotation which picked up in earnest some time in March and which has only been captured by the Household survey.
US Factory Orders Unexpectedly Tumbled In July As War-Spending Tumbles
That is the first drop in factory orders since September 2021 and biggest drop since the peak of the COVID lockdown crisis in April 2020
The main driver of this disappointment was a lack of war-buying - Defense Aircraft and Parts tumbled 49.7% MoM after spiking 78.3% MoM last month...
Indian economy larger than UK economy. Is one growing or the other is shrinking, I suggest it is a bit of both. Both areas were hit by covid and UK had far more resources to deal with it, India has rebounded and growing with a young and ambitious population. NZ needs an FTA with India and we have wasted a lot of time and effort dealing with and getting done over by the EU
I think people aren’t realising that unemployment won’t rise unless there is a huge recession. The world is so short of labour due to covid and slow immigration and a quickly increasing aging population. On the back of that interest rates must stay higher borderline permanently as the world will continue to see wage pressures even in a big slowdown. It’s a new phenomenon the world has never had.
Correct: it's a new phenomenon now -- but we had it, up until 1800.
The difference was fossil energy, taking over from human/animal labour. Now, that energy is retreating and being displaced by said labour. The orders-of-magnitude difference (try pushing your car to the supermarket) means full 'employment' from here on. Not only that, we'll be triaging what we consume, because we'll be triaging energy.
In Canada, Vancouver is reporting that sales of houses are down -45% from year-ago levels in August, and prices are now dropping month-on-month.
Hmmmm...- NON-STICKY INVESTMENT - What Did Boom; More Importantly What Did Not
Savings – rather than credit – poured in on real estate, largely via investment funds who unlike individuals could remain liquid, so they seemed, and keep up their safe profile, for a time, for desperate though misguided savers.
In macro terms, the economy benefited from the artificial “boom.” Meanwhile, actual supply side potential failed to ever recover at all; not for the first time, either. GFC’s root became a unit, the aftermath of 2020 appears to have been even more of one on top of the several in between.
The net result was residential “investment” surged while legit, productive business investment suffered. They called it a boom because to the abstract macro view, activity is welcomed regardless of purpose. Worse, if it’s activity because of belief in something the Fed did, it’s assumed all the better.
Except, no, in reality it sets the system up for further failure; reinforcing all the wrong ideas and processes about the actual fundamentals. Suddenly, the housing “boom” becomes a bust once savers realize they were saving for something that might (did) not happen. Since “investment” here isn’t as sticky because it was predicated on a series of misinterpretations and mistakes, it risks spiraling into a bigger mess, causing even more negative spillover effects.
All the while the over-cautious business sector hunkers down yet again watching the downside chaos (predictably) unfold as still more confirmation as to the benefits of not chasing such rainbows. Hire even fewer new workers, make even fewer investments in capacity and efficiency when not cutting back on both.
Advertised rentals are down 2.5 percent across NZ and 2.2 percent across Auckland in the last 5 days.
Something is happening. Could be that tenants are being shown the door so that owners can sell but I don't think so.
Personally we have recently been getting more unsolicited out of the blue equiries. Some coming in from overseas and others where a single man has gone back to his homeland for a bride and the new wife is arriving.
Why would they come here? The shortage is global and in the millions, plenty of options where houses are cheaper and wages higher. We'd be better training our own and giving them incentives to stay in the country, for instance cancelling 20% of their student loans each year.
who are "we"?
unfortunately we have come to an impasse where what is good for the banks and what is good for New Zealanders who live here are two different paths
its all very well prices in St Stephens Ave hitting an all time high but if you cant safely go to the shops because the population has starting looting you got a problem
I wonder if we are about to find out why we provided free education.
Interesting to read in the herald that Australia has lifted its immigration cap by 35,000.The total is now 195,000.Of most interest was to read that Australia too has a staff shortage problem and one main risen given was that "their best and brightest" are off too. Like Godwits they too have found the secret to survival is to fly to the other side of the world.
The numbers just simply don't add up for the young who live here.
Also this week we are told that 25% of staff are wanting to change roles this year.Thats a hell of a lot of disenfranchised people, not all, but many.Then the article about the EMAs survey rolls into a nudge for providing healthcare insurance as an incentive.Ill take a wild guess.The EMA staff is insured by NIB so they are happy.But does the EMA consider what this additional cost is for business and is it needed in a country with a free national healthcare system.I will take another wild guess and say there are only two degrees of separation between the owners of the banks and owners of NIB.
"We" have been lead up the garden path.Naive, trusting New Zealanders.
God save New Zealand but send the landlords and banks to hell
"Meanwhile, Gazprom said it "found a new fault" in its pipelines to Europe and is shutting down supply semi-permanently. That will no doubt save their senior executives from accidentally falling out a high-rise window."
Funny.
I've seen a (conspiracy?) theory floating about that all the Russian energy Tzars (and their wives and daughters) being killed off are longtime mates of Putin, and these are actually Western backed hits. If the top layer of Gazprom gets whacked anyway after the shutoff, will it prove the Western Imperialists are to blame after all?
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