Here's our summary of key economic events overnight that affect New Zealand, with news of a raft of strong first-tier US data. Their expansion cycle isn't done yet.
New orders for American factory durable goods jumped +1.7% month-on-month in May, following an upwardly revised +1.2% rise in April and easily beating market expectations of a -1% decline. This is the third straight month of rising durable goods orders, led by a surge in orders for aircraft and motor vehicles. Year-on-year they are up +7.3% so a real, after inflation gain now. Capital goods order growth was strong, up +15%. Boardrooms have been bullish, it seems.
Sales of new houses were very strong in May too, up a full +20% from year ago levels, although to be fair they weren't flash a year ago. These rises matches rising recent building consent data.
Not so strong was last week's retail sales data. On a same-store basis it rose only +0.5% from year-ago levels and much lower than inflations bite.
But that hasn't held back rising consumer sentiment. The latest survey from the widely-watched Conference Board was noticeably brighter, rising to its highest since January 2022. It was led by younger people, under 35 years.
Yesterday we noted the dour Texas factory survey. But that isn't indicative of all regions. Today, the Richmond Fed's factory survey came in much less negative in June than May, driven by a better new order situation. But to be fair, output levels remained lowish in June.
The Dallas Fed released its services survey for June today, and the troubling factory survey there is matched by a downbeat one in their services and retail sectors.
In Canada, falling energy costs allowed their May CPI inflation to fall to 3.4% from 4.4% in the previous month, the lowest since June 2021 but it was in line with market expectations. And the result was broadly in line with their central bank’s baseline scenario that inflation will slow to the 3% mark by the next month or two. By getting close to that official assumption it does raise doubts about the rate hikes left in its tightening campaign.
In China, with a spreading ban on commentary Beijing doesn't like, including of respected commentators on the independent Caixin platform, it is becoming harder to discern what is going on in their economy. But the bans reinforce the idea that the trends are not positive. Also, see this.
In Europe, ECB President Lagarde was talking overnight and said they will raise rates again in July, and they have much more work to to to tame inflation. She noted that wage growth is now pressuring inflation, and they are entering a second stage - first energy push, now wage-push - and this set to linger for some time. This was an unusually direct set of signals from Lagarde. And the IMF is also worried about how long it is taking Europe to get on top of its inflation problem.
In Australia, despite their slowdown, their government surplus is now expected to rise, according to their Treasurer. The budget surplus for this financial year will be “significantly” higher than the AU$4+ bln forecast last month, thanks to revenue from their still expanding labour market, sustained high prices for commodities, and company profits. Again, it is hard to have a recession when the jobless rate is low.
The UST 10yr yield will start today at 3.77% and up +5 bps. Markets have thrown in their hand and lost the conviction rates will drop later this year. They believe Powell and the Fed now. Their key 2-10 yield curve inversion is little-changed at -100 bps. Their 1-5 curve is still inverted at -132 bps. But their 3 mth-10yr curve is less inverted, now by -134 bps. The Australian 10 year bond yield is now at 3.94% and back up +4 bps. The China 10 year bond rate is unchanged at 2.71%. And the NZ Government 10 year bond rate is up +2 bps at 4.58%.
Wall Street has opened its Tuesday trade with a strong +1.1% gain in the S&P500. Overnight, European markets were mixed with London up +0.1% and Paris up +0.4%. Frankfurt was in between at +0.2% Yesterday, Tokyo ended its Tuesday trade up +1.9%. Hong Kong rose +1.2%, and Shanghai rose +1.0%. The ASX200 ended its session up +0.6%. But the NZX50 only managed a +0.1% gain and only because of a late burst from earlier losses.
The price of gold will start today at US$1912/oz and that's down -US$13/oz from yesterday.
And oil prices are -US$2 lower from yesterday to now be just under US$68/bbl in the US. The international Brent price is now just under US$72.50/bbl.
The Kiwi dollar starts today at 61.7 USc and unchanged from yesterday. Against the Aussie we are little-changed at 92.3 AUc. Against the euro we are softer at 56.3 euro cents. That means the TWI-5 is now just on 70 and down a mere -10 bps since this time yesterday.
The bitcoin price has risen from this time yesterday and now is at US$30,722 which is a +2.1% gain. Volatility over the past 24 hours has remained modest at just under +/- 1.6%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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56 Comments
Toll road decision: https://www.nzherald.co.nz/nz/former-transport-minister-michael-wood-ig…
Anyone else noticed that National seem to have plenty of money to spend on crime and roads while also being able to afford tax cuts and also decrease government spending to curb inflation. Maybe they have a magic genie? I guess they can always stop super fund contributions and expect the next generation to pay even more. Of course that would be inflationary though.
It's called printing money Jimbo. But the Government can do that. If they're not careful though it can bite big time. Roads produce a significant economic return so i would suggest any Government should be able to fully fund good quality roads without having to tax.
Driving to work this morning, I wondered how much extra fuel is consumed simply because our roads are really poorly designed, just crap condition and not built with a forward looking vision? The Greenies are anti-roads but that only goes to show their lack of vision, but you'd think they could see the problems?
"Roads produce a significant economic return"
Incorrect:
1. Some roads produce an economic return.
2. Often that economic return is much lower than if they had used a different mode of transport.
3. Often the economic return is calculated by excluding other costs that roads cause (e.g. balance of payment deficit through the need to increase evermore cars from abroad in order to use the roads)
Unless you have a source for that generalisation.
Yes I did generalise. As the recent weather impacts on the east coast demonstrate the cost of some roads exceeds any benefits from them. But I would hold that the majority or roads, and indeed a well planned and built roading network is essential to a functioning economy. As we are predominantly an agricultural economy, then we will need to provide high cost roads to some areas that need it.
Well we agree on the need for a well planned and built road network.
I'll disagree that the majority of roads are essential to the functioning economy.
If you look at any of our urban centres the roading network has been overbuilt and we can see how that has led to car dependence, urban sprawl, congestion, massive ongoing and increasing maintenance costs, inneficient freight, environmental degradation, pollution, poor health outcomes, social problems, low productivity and ugly and unattractive local town centres.
History of the growth in our standard of living and productivity has revolved around transportation networks... eg canals, railways , roads, airplanes.
At this moment in our history, roads are the primary means of moving things...connecting things
In that regard, they provide a primary economic benefit... ( Just ask farmers who cant move livestock etc, because roads are washed out )
With networks I understand that the marginal cost of a particular road may be very uneconomic BUT the value to the overall network makes it worth doing.
Same principles apply to telecommunications.... Why did we bother Networking the whole country back in the early days of telephones..?
Because the more networked the system is, the more value it has.... in many many ways..
I think there is a whole field of study about the value/economies of networks, with some of the ideas a little counterintuitive ..maybe .....
and beyond my limited understanding....
"At this moment in our history, roads are the primary means of moving things"
Not disagreeing with your comments on transportation networks. But the point you make about roads being the primary means is because that is how the system has been actively planned and delivered.
It is a relatively recent phenomenon and it required governments:
- to actively rip out other more efficient transport modes like trams and trolley cars
- invest massively in roading and parking infrastructure (with little regard to ongoing maintenance costs)
- starve anything other than roading infrastructure of any funds
There is nothing natural about the state of our transport system it is the culmination of active intervention by central and local government transportation agencies
Printing money bites always. There is no such thing as being careful with it.
I disagree, it doesn't always have to bite. The differentiation is the purpose.
The banks have been printing money with no controls and that's caused big problems. But the Government could look at economic returns for the country and selectively fund areas with proven returns to benefit the whole country.
Even if the spend is targeted and small, printing bites. It will be a small shaving on each of us, but still a bite.
Government spend costs you, even when when concealed.
"Driving to work this morning" ..let me guess just you in a large SUV?
I am sick of this arguement. It is more efficient (and better for the environment) to own a single vehicle capable of many purposes than multiple vehicles capable of a single purpose.
Or catching the bus..
If they are available or even exist. Public Transport isn't one of NZs finer points. Particularly for those living in the regions.
No, it is normally more efficient to own the type of vehicle you use most often and rent specialised vehicles for times when you need a specialist type of vehicle.
Of course this will vary massively from person to person. If a tradie is driving off-road with heavy loads most days then a Ute is probably justified. If it's an accountant who is driving to their office hob and just wants a Ute to tow their boat at the weekend then no it isn't more efficient and environmentally friendly to own a Ute.
Some people who live near good public transport connections and have services close by may find they do not even need to own a car and can join a car share scheme for when they do.
Why is what kind of vehicle I drive relevant to this discussion? If I drove a EV the poor quality of roads would drain power at a faster rate than high quality motorways. As a significant portion of the country's vehicle fleet remains fossil fuelled those losses are a contributor to global warming. Efficient transportation requires high quality roads irrespective of the energy source. The public of NZ has been sold a BS line by our Governments and transport agencies for generations now. Time for that to stop.
Building new/better roads lead to more driving which increases emissions.
The idea that you can drop almost 1billion making the road from Auckland to Warkworth a couple minutes quicker and that people will drive less and lower emissions as a result is not convincing.
That is your interpretation of my comments, not what i actually said. But you are bringing a part of the bigger picture, that of public transport availability, and the viability of the rail network. But you are making a big generalisation when you assume that better roads will cause people to drive more. For some that might be the case, but others won't regardless. The motorway out of Wellington is great and reduces travel time, but it hasn't resulted in me driving to Wellington more often.
Induced demand will occur over time though as people in the surrounding areas are now within a shorter-time trip to Wellington etc, so demand will increase.
There is a reason why NZTA / Waka Kotahi or the other transport agencies have traffic volume minimums or expectations before they upgrade roads as it costs money to upgrade and there are always competing demands for that pool of money. Most of the time the government will just step in and promise a road somewhere to win an election and say to hell with the BCRs or other analysis.
This is the usual terrible standard of journalism from Orsman. He comes up with his angle and then tries to fit the story to the angle he is making.
e.g. when he says he ignored officials advice he fails to mention he obtained different advice from different officials so if he had chosen to not toll it he would also have been ignoring officials advice. The Minister did what he was supposed to do, seek multiple views, listen to their official advice and make a decision based on what he thought was the best outcome for the country. You can disagree with his decision but I think it's unfair to report this as he did something wrong.
Orsman has probably single-handedly done more to hold back progress on housing and transport in Auckland than anyone else. He is a reactionary self-important fool masquerading as a journalist.
I agree. I don't like Michael Wood very much, he's a walking ego, but this feels like a hit piece.
Same. And as usual National are chipping in saying they will reverse it. So who is going to pay for the road, us. More and higher taxes under National.
Under any normal right wing government, getting users to pay for the services they use would be standard policy. Under this shambles version of a National Party they oppose a policy aligned with their supposed values because Labour put it in place.
Simeon is a clueless child but Luxon should know better. Worse National leader in living memory
Yeah right.... Sounds like a wonderful way to choose ...whatever you want... Not too hard to pay for whatever "narrative " you want.
Reading the MOTs' view, in that article, makes good sense to me....ie. That the penlink road benefits more than just the local residents that Wood wants to charge, that will use that road. It also benefits others who will not use that road. And that people avoiding the toll by using other routes will negate the overall efficiencies, somewhat. Why would he ignore it ?
Thats probably how Michael Wood also came to justify the $685 billion cycleway over the bridge... ie.. getting the report he wanted to justify his view.
To all the people I know, commonsense was enuf to say it was a really expensive dumb idea.
https://www.stuff.co.nz/auckland/125343356/new-685-million-cycling-and-…
Now ...with hindsight...we can see he is not the smartest cookie in the jar...so to speak. His fall from grace is kinda bizarre.
just my view...
"Reading the MOTs' view, in that article, makes good sense to me"
Yeah this is my point, Orsman has not reported what the counter-argument was so you'll never know if that made more sense.
He cherry picks to make his personal narrative. It is not journalism, it's an opinion piece masquerading as journalism.
I'm going to call out a myth that seems to be being repeated a lot lately. DC states "Again, it is hard to have a recession when the jobless rate is low." I think this will be likely to be coming from economists and is a world wide view, but while the jobless rate is low, if the rate of inflation is driving prices up, but wages are low and not keeping up with inflation - driving living standards down then of course it is easy to have a recession even when the jobless rate is low. Disposable income is vanishing or gone, swallowed up by inflation, savings are being stolen by inflation and bank fees. So I strongly suggest DC's statement is pushing an economists myth.
What is worse; is the pollies and elites ensure their income increases with or exceeds inflation, so they'l be alright. Nothing to worry about there.
Why would wages not keep up with inflation in a low unemployment scenario?
Look at the real world Jimbo. Wages in a few areas are, but across the board mostly I would suggest they're not. With inflation over 10% do you know anyone who is getting an increase matching or better than inflation without having to change jobs? I'm in the regions and I don't see it happening.
I suggest that is another part of the myth. In theory, with low numbers of jobless wages must go up to attract workers. But is that actually happening? And what security is there there for those workers? What does that big picture actually look like in reality?
Thus, when an agent like the state, which weighs 40 to 60 percent of GDP in most economies, continues to consume wealth and spend, gross domestic product does not show a recession even though consumption and private investment in real terms is declining. Bloated government spending is disguising a private sector recession and the decline in real disposable income, real wages, and margins of SMEs (small and medium enterprises). Furthermore, the accidental and exogenous factor of widespread weaker commodities is boosting the external contribution of gross domestic product. Link
Audaxes,
Interesting article
I agree that we kinda have 2 economies, which can distort aggregate stats. Public sector/private sector . Wealth inequality levels as well..
https://medium.com/@zachwahls/our-biggest-economic-social-and-political…
In regards to money supply decline....I dont think he is correct in what it implies.
In USA M2 money does not include Time deposits over $100,000
I'd suggest there has been a rotation out of transactional style accts into money market funds and Time deposits, which has resulted in a decline in M2.
What confirms this , for me, is that credit growth is still positive ...thou declining fast https://fred.stlouisfed.org/graph/fredgraph.png?g=16wH8
just my view...
I agree. The bulk of the jobs in our economy are in the low-wage service sector, owing to low economic complexity (NZ tied at #46 in the world with Russia back in 2021).
A simple Google search on news articles from the jobs boom in 2022 shows some of the most advertised roles were "chefs, restaurant managers, drivers, couriers, building trades and warehouse workers".
Our large current account deficit is also a sign of the low-value job factory that our economy has become. A current account imbalance of such levels means low levels of investment in production and higher focus on domestic consumption creating crappy jobs.
Better to keep your job at current pay rate (or even lower) than have your income cut to 0% if the company reorganises?
Haven’t seen a contract in many years with more than a month notice of redundancy. I have also seen really good staff made redundant, over crap staff purely because of role and, or location. I think the safety of employment is overstated. If your number comes up, you are gone and it doesn’t matter if you live and breathe for the company.
Redundancy in NZ is a can of worms from an employers perspective. If done wrong you open yourself up to a very expensive and time consuming personal grievance. Most of these are settled behind closed doors however that doesn't make it any better.
Agreed. I honestly feel more securing in my current "gig" doing freelancing/contract work, where no one client represents more than 5% of my total monthly income.
They get to hire me for the bit they need the most, and although clients come and clients go it's unlikely I'd lose every job at once.
On the other hand, I've been made redundant three times in the past (well four, technically, but I actually had handed in my resignation about 30 mins before we all found out we were losing our jobs anyway) and it's always a scramble as all your income is on the line.
Theres always lag and a reluctance. Your contract doesnt have monthly CPI adjustments.
Personally, I got a 2% pay rise and am underpaid 20k+ compared to market so Im looking.
Yeah I agree.
It’s a bit of a flawed viewpoint because unemployment often follows recession, not the other way around. Just look at historic graphs. Unemployment in NZ was 4% in 2008, by mid 2009 it was over 6%. The rise in unemployment lagged the commencement of recession.
There’s also very different structural factors in the labour market and economy now, compared to the past
Wonder what the participation rate is, also number of people not working but not counted as jobless. If the family income is high and one party is unemployed do they count? Also number of people on benefits that are not counted. And how many people are doing more than one job to survive? Do they count as two people employed. I have heard stories of 40 odd people applying for administration roles, so possibly certain jobs are in short supply. I don’t trust the statistics personally.
David sticks doggedly to the economics line - 300 years old and still regarding 'labour' as significant.
http://theoildrum.com/node/4315 (took me right back...)
Several years of hard human labour in a US $70 barrel of oil; no comparison. Yet they determinedly focus on labour...
His view on the OCR being cut as the next RBNZ move is flawed (see the above Briefing for all the reasons why) but he's right with this:
Kerr says only half of Kiwibank’s mortgages have rolled off lower interest rates on to higher rates, with the other half yet to be impacted – about 40% will roll off their current low rates over spring and summer. A lot of people with an $800,000 mortgage who were paying $20,000 in interest will end up paying more than $50,000 in interest at a time when declining house prices have hit confidence, he says. (Stuff)
Belshazzar and all his wise men couldn’t read the writing on the wall either. Some things change and stay the same.
Liquidations increasing quite a lot, especially in hospo and retail:
https://i.stuff.co.nz/business/132243210/liquidations-rising-as-economy…
And oil prices are -US$2 lower from yesterday to now be just under US$68/bbl in the US. The international Brent price is now just under US$72.50/bbl.
Yep, in contango out to Feb24 - traders forced to store oil as current consumption collapses.
Perhaps another reason that global Inflation isn't going down any time soon. Some thoughts via Martin Wolf.
(The USA) Unleashing trillions of dollars of investment in emerging markets..... This is indeed a fundamental shift in the ends and means of US economic policy..Do the new goals make sense? In some fundamental respects yes
https://ustoday.news/america-feels-buyers-remorse-for-the-world-it-buil…
God help the US taxpayer, the military industrial complex already claims half of deficit spending. US government is crowding out it's own citizens.
Troubling news for the company but the laid-off workers will find well-paying jobs easily in the broader economy.
The switch to EVs is a huge opportunity for smart workers as large-scale electrification will take several years and several hundreds of billions for the US to rebuild their entire infrastructure.
Not very hard for engineers to retrain in a different subdomain (automotive to power in this case).
Growl grumble Growl
I'm feeling especially bearish, the calapse is pending.
German Central Bank May Need Bailout After ECB Bond Scheme Losses: Audit Office
In March, the Bundesbank said that future losses would "probably" exceed its remaining €19.2bn of provisions and €2.5bn of capital, but that it's also got €170bn of gold and foreign exchange reserves, and could carry forward losses against future profits, as the Financial Times writes, nothing that the bank instituted similar measures in the 1970s.
As Ben Bernanke explained before Congress years ago, when the Fed books a loss as an asset, “it is an asset in the sense that embodies a future economic benefit that will be realized as a reduction of future cash outflows.”
A sensible, and sobering, view.
The last time the (current account) deficit was bigger was back in 1975...Despite falling 17% since late 2021, house prices are still 21% higher than they were at the end of 2019, and they have been rising considerably faster than incomes for more than two decades. Housing might be cheaper than it was two years ago, but it certainly could not be described as affordable.....High house prices also tie up an outsized amount of capital, reducing the scope for Kiwis to pursue more productive investments.
https://www.stuff.co.nz/business/the-monitor/300904584/current-account-…
OPINION: [insert facts, stats and logic here]
Who would have though stuff would have an opinion piece (it feels like that is over 50% of their articles) that makes sense and breaks from their usual drivel. How did that slip past the editor.
US bank reserves are hardly falling
USA still steaming
China deflating
So much for them being number one soon
I wouldn't believe half of what you read if I were you. The USA is crumbling and crumbling fast, once you enter a nose dive its hard to pull out. I would give the USA 10 years or less before it looses its reserve currency status. Over 100,000 of them dying from Fentanyl overdose every year alone.
They might need to relocate the soil moisture monitors in Tairawhiti. Looks like everything is sweet there when the hillsides are sliding down into the valleys. No let up for those lifing there.
Yes but those slides are due to plenty of soil moisture, not a deficit. I'd suggest they weren't concerned too much about lots of water. But then Gabriel hit with a gift that just keeps coming.......
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