Weekend briefing: American consumers see bleak outlook

Economy / news

US data wavers, sentiment drops sharply; Canada gets ready to vote; China winds up its consumption push, cancels some key ag orders in the US; UST 10yr at 4.24%; gold holds; oil up; NZ$1 = 59.7 USc; TWI-5 = 68

26th Apr 25, 9:00am by David Chaston

Here's our summary of key economic events overnight that affect New Zealand, with news the American middle-class, whose consumption has long been the engine of the global economy, are looking ahead with fear and trepidation. China is making significant efforts to be that replacement engine.

First, US initial jobless claims fell last week to +209,700 and to the level expected. But seasonal effects suggested this reduction should have been larger. There are now 1.89 mln people on these benefits, still higher than year ago levels. This is despite Federal pressure on States to deny long term undocumented workers access to benefits.

New durable goods orders jumped in March by +10.9%, the largest rise in seven months. Capital goods orders rose +24.1%. But non-defense, non-aircraft capital goods orders were only up +1.8%. This is probably why the March or April PMIs didn't note a general rise in factory orders.

US existing-home sales fell -5.9% in March from February to be -2.4% lower than one year ago.

Meanwhile the Kansas City Fed factory survey reported lower activity, higher costs, and unchanged order levels.

Nationally, the Chicago Fed's National Activity Index reported a small slip in March. This is consistent with the overall Fed Beige Book monitoring.

And finally for the US, the UofM sentiment survey for April was -8.4% lower than for March, -32% weaker than a year ago. These are big drops. Year-ahead inflation expectations surged from 5.0% in March, an unusually high level, to 6.5% this month, the highest reading since 1981.

North of the border, Canada reported February retail sales and they slipped from January to be +2.1% ahead of year ago levels. This data is volume data, so a real increase.

The Canadian election is in its final stages, and they go to the polls on Monday Canada time, Tuesday NZT. Although the polling is tightening nationally, wins by electorate still suggest the incumbent Liberals will win an absolute majority. Canadians are being bombarded with right-wing campaign pressure on the Musk-owned X/Twitter network. (Polls are wrong occasionally, although not so frequently in Canada. Pre-the US election, these same polls suggested the Liberals would be heavily defeated.)

Across the Pacific, Singapore said its industrial production rose in March, a bounce-back from a weak February result. But the recovery wasn't as strong as analysts had expected.

In China, they are adding another ¥500 bln in medium-term lending facility funding. This is the second month they have pushed out additional liquidity in this way.

China says more than 120 million people have benefited from their old-for-new consumer goods trade-in, driving sales of more than ¥720 bln.

And the BS meter is on high after Trump said that “we’re meeting with China” on tariffs, comments aimed at soothing jittery financial markets. But Chinese officials say no talks have taken place.

In fact, China cancelled some large pork and soybean orders to US suppliers. American farmers not only have to bear the brunt of trade policy gone rogue, they are also battling rouge weather.

Global container freight rates slipped another -2% overall last week to be -23% lower than year-ago levels. Bulk freight rates rose last week, but that was from an unusually low level.

The UST 10yr yield is now at 4.24%, down -14 bps from this time Thursday. A week ago it was at 4.33% so a -7 bps fall since then. The key 2-10 yield curve has eased back slightly to +50 bps. Their 1-5 curve is now inverted by -8 bps. And their 3 mth-10yr curve is inverted -4 bps. The Australian 10 year bond yield starts today at 4.20% and down -10 bps from Thursday. The China 10 year bond rate is now at 1.66% and down -1 bp. The NZ Government 10 year bond rate is down -4 bps at 4.51%, down -2 bps from a week ago.

Wall Street rose today, up +0.7% in Friday trade and it ended the week recovering +5.6%. (For the month it is down -4.5%.) Earnings growth for Wall Street companies seems to be running out of steam. Overnight, European markets were mixed, between +0.1% in London and +0.8% in Frankfurt. Tokyo ended its Friday session up +1.9% for a weekly gain of +3.3%. Hong Kong was up +0.3% and a weekly +4.3% rise. But Shanghai slipped -0.1% on Friday to end +0.7% ahead for the week. Singapore slipped -0.2%. The ASX200 ended its Thursday up +0.6% for +2.7% weekly rise, while the NZX50 was up +0.5% on Thursday for no weekly gain.

The Fear & Greed Index ends the week back in the 'fear' zone, and no longer hard over in the 'extreme fear' zone it was last week. The VIX volatility index is -0.5% lower today to be -22% lower than this time last week. But that is not quite back to where it was at the start of the month. Current levels are almost twice as high as year ago levels.

The price of gold will start today at US$3290/oz, and up +US$8 from Thursday. But it is down -US$37 from the US$3327/oz level.

Oil prices have risen +US$1.50 from yesterday to be now just over US$63/bbl in the US and the international Brent price is now just under US$67/bbl. A week ago these prices were US$64.50 and US$68/bbl. (And we should note that there has been no rise in North American drilling rig counts. The industry that helped fund Trump's campaign didn't buy is 'drill-baby-drill' rhetoric. From election day, there are a net +2 additional rigs in production.)

The Kiwi dollar is now at 59.7 USc, up +10 bps from Thursday at this time. A week ago it was at 59.4 USc. Against the Aussie we are down -30 bps at 93.3 AUc. Against the euro we down -10 bps at just on 52.5 euro cents. That all means our TWI-5 starts today still just at 68 and unchanged from Thursday, but up +40 bps from a week ago.

The bitcoin price starts today at US$95,035 and up +1.2% from this time Thursday. A week ago, it was at US$84,605 so a +12% rise since then. Volatility over the past 24 hours has again been modest at +/- 1.4%.

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18 Comments

by IT GUY | 26th Apr 25, 9:25am 1745616346

The Pointy Tip Of Industrial Warfare

I've said it before, I'll say it again... This is what the pointy tip of industrial warfare looks like.

For grins, I CADed up this part. Simple, 2 op, aluminum, can probably make it with tools already in the machine because this is the sort of work I do all day, so I am pretty optimized for small aluminum parts.

Getting these 4 out the door would - if I hustled like a dog - take me about 1 hour. Even at a bankruptcy inducing shop rate of $60 (which no shop in the US is doing work like this for), I still get a price that is 15x the China Price. And I guarantee you, I am as technically skilled at work like this as any shop in China, using the most advanced tools/techniques available.

China is not doing this work for this cheap. Even if you give the most optimistic estimates of their labor costs, facility costs, machine costs, material costs... The price they are making these for has noting to do with any reality. We are not "competing" with China in the traditional Western free-market, may the best man win, commercial competition. You are not out-hustling what China is doing here, there is no AI that will get these parts machined at these prices. No amount of re-industrialization or trade school growth or 0% financing will fix this short of basically doing what China has done which is nationalize the industry throw a thin veneer of "private business" on top of what is basically a government effort to damage trade partners.

Our big mistake is that we've allowed China to trade dump on us and absolutely decimate American industry to the point where it is feeble joke. You are 100% right that American machine shops can't compete and wont't answer the phone for stuff like this - that is what 30 years of unrestricted weaponized trade does to the industry on the receiving end.

We need to de-weaponize China. We will never compete with their costs and they will always be the cheapest - but if we can compete with them on an actual level playing field, we'll bring the price ratio from say 15:1 to 4:1. The China price is $5/part, we're at $20. Ok, now American shops can get to a place where we can be adding value to that part where paying more makes sense - faster turn, no international shipping, no IP concerns, quality DFM feedback to help the customer out, start setting up more R&D oriented relationships, etc etc.

You level the playing field, and America's entrepreneurial spirit can ignite the embers of manufacturing skill that still exist here and catch massive fire.

by Let me be Frank | 26th Apr 25, 9:47am 1745617629

If states wish to subsidise production (of whatever products, not just industrial not to mention freight) that may be fine as the importer benefits from the reduced expense, however when states reach the point where they no longer have the ability to maintain their own societies reduced expense means little....we have reached (passed) that point.

This is the true failure of globalisation.

by IT GUY | 26th Apr 25, 9:55am 1745618115

China have gutted international manufacturing, British Steel, another example.

by Foxglove. | 26th Apr 25, 10:00am 1745618437

Sometime back a post on here with the point that society can no longer afford itself. That is in my opinion putting just about everything in a nutshell.

by Let me be Frank | 26th Apr 25, 10:23am 1745619792

I believe that was PDK

by profile | 26th Apr 25, 1:44pm 1745631870

"There are many reasons to criticize Trump's tariff policies, but it is strange to suggest that they are distorting trade because they push the global trading system away from an expression of global comparative advantage. In fact this hasn't been the case for decades."

https://x.com/michaelxpettis/status/1915646893507424630

by kiwikidsnz | 26th Apr 25, 9:54am 1745618064

"Its official. The figures came in yesterday from the International Monetary Fund. NZ had one of the world's worst performing economies in 2024, coming in at 183rd out of 196 nations."

The IMF ranks NZ as 183rd out of 196 nations in the world for 2024 confirmed real economic (GDP) growth

by IT GUY | 26th Apr 25, 9:56am 1745618172

No surprise given we export raw commodities and import everything, including petrol.

by singautim | 26th Apr 25, 10:08am 1745618926

The population of NZ has increased from under 3.9 to over 5.2 during this century. That has not been a natural increase. So hypothetically where would NZ economy be if the population hadn't increased by a third? Those 1.3million people are doing something but how many produce exports?

by redcows1 | 26th Apr 25, 12:40pm 1745628057

Or are those 1.3m producing something, but 1.3m former producers are now doing bugger all and getting paid even more for it. Hence our poor productivity figures. I suggest this because our immigration has tended to be at the bottom end producing commodities and tourism service. The former workers at that level must have moved on to something.

by singautim | 26th Apr 25, 4:41pm 1745642477

I must admit I'm one of them (from 2002). I doubt I improved NZ's GDP; been retired a dozen years. My wife is an energetic accountant but I'm not sure if all her work on family trusts, property investors, etc has helped. Maybe the three grandchildren once they finish school will contribute.

by Zachary Smith | 26th Apr 25, 10:51am 1745621488

Well, we were in recession last year. This year looks much better with a better GDP change forecast than the UK, France and Germany.

by Averageman | 26th Apr 25, 11:10am 1745622647

Lotta leverage in the US. If there is a financial hit from a pull back it will be felt everywhere.

by IT GUY | 26th Apr 25, 4:00pm 1745640049

Everywhere, leveraged markets is all you have once you stop making things or providing services.

I think you may find quite a bit of overleverage here in NZ as well.

by powerdownkiwi | 26th Apr 25, 1:24pm 1745630689

Is that when you get a red alert?

Rogue comment...

by profile | 26th Apr 25, 1:42pm 1745631739

China is making significant efforts to be that replacement engine.

"...So how long would it take for Chinese consumption as a share of GDP to reach a normal level? To answer the question, let us assume that a sustainable level of consumption would be 63–64 percent of GDP, or ten percentage points higher than it is today. Note that this would still leave China with one of the lowest consumption rates in the world.

But while this target may be low, it nonetheless helps illustrate how far China has yet to go.

...if growth in consumption accounted for 70 percent of China’s future GDP growth, and if China’s nominal GDP grew by 6 percent on average, it would take 16 years for the consumption share of China’s GDP to rise to 63–64 percent of GDP.

...It will instead require many years of real determination by Beijing to drive the role of consumption to much higher levels if China is to rebalance in a nondisruptive way."

https://carnegieendowment.org/posts/2024/09/china-needs-a-very-high-con…

by singautim | 26th Apr 25, 4:51pm 1745643074

Judging by Chinese TV on YouTube & Netflix which are either historic dramas full of princes and princesses or they are set in an equally mythical today where CEOs have the powers of a warlord. They consume alcohol with more enthusiasm that the worst Glaswegian. These modern heroes are CEOs who do no actual office work but are experts at conspicuous consumption. Since the CCP controls their media it can be deduced that consumption will increase.

by Foxglove. | 26th Apr 25, 6:49pm 1745650192

Alcohol has its uses. Read for instance Baron De Margot’s account of the Battle of Eylau where he expericienced that the whole damn Russian army was fuelled by vodka. In the same vein so too, with rum, were the gun decks of Nelson’s fleet at Trafalgar.