Here's our summary of key economic events overnight that affect New Zealand, with news all about American GDP and reactions to the first quarter results.
US economic activity expanded an annualised +1.6% in Q1-2024, compared to +3.4% in the previous quarter and below forecasts of +2.5%. It was the lowest growth since the contractions in the first half of 2022, although there are two more revisions due (and in the Q4-2023 set, they rose with each revision). The result was held back by a decrease in inventories and a rise in imports. However, disposable personal income rose an impressive +4.5% according to today's release.
However, the PCE data released with this shows inflationary pressures unabated. So the US 10-year Treasury note yield rose to above 4.7%, the highest since early November, as traders scaled back their expectations regarding the timing of a Fed rate reduction, with the first cut now not priced in fully until December.
We should note that lower growth with still-high inflation equals stagflation, a gnarly public policy problem, as history shows.
Further, today's US Treasury 10 year bond auction reveals median yields rose to 4.47% in yet another well-supported offer. That was +37 bps higher that the prior equivalent event a month ago. (But it does seem curious that the secondary market prices these at 4.7% however, especially when demand is so strong in the primary market.)
Meanwhile the number of initial US jobless claims fell to just 201,000, a bigger than expected retreat and the second-lowest weekly level in the past 13 weeks. That means there are now 1.82 mln people on these benefits, the lowest since mid-December.
US mortgage applications fell rather sharply last week, down -2.7% from the week prior and are now -15% lower than the same week a year ago. So it will be a surprise to know that March pending home sales rose +3.4% from February although they are virtually unchanged from a year ago.
New orders for durable goods surged by +2.6% in March from February, following a downwardly revised +0.7% growth in February. The March rise was more than expected, but the year-on-year change is still a negative -2.2% . It was the largest monthly advance in durable goods orders since last November, primarily propelled by robust demand for transport equipment. Orders for non-defence capital goods rose too.
Canada released retail sales data for February, and in real, inflation-adjusted terms, they fell -0.3%.
All eyes are now turning to the Bank of Japan which is meeting today. They have important policies to balance regarding rising inflation, an expanding economy, but a currency that the being depreciated in USD terms, the one relationship that motivates them. But then, many countries are struggling with the rising USD at present.
In China, the Shanghai prime office vacancy rate has hit a 20 year high - at over 20% vacant. That is a lot of spare capacity and it will worry policymakers that it is continuing to swell.
In Australia, Warren Hogan, who was ranked 2023’s most accurate economic forecaster, predicts their rising economy will force the RBA to lift rates to 5.1% this year. He is an outlier, but part of a growing cohort of analysts who don't see inflation beaten yet as the economic expansion rolls on in many of the world's major countries with its pressures.
Better income expectations, economic prospects and a rising 'propensity-to-buy' among consumers has shifted the German GfK Consumer Climate Indicator to its 'highest reading' in two years (well actually its least negative reading in two years). But they will take the progress.
We should note that copper prices have surged recently and now top US$10,000/tonne and that is its highest since April 2022. (It is now only 6% below the all-time high, also in 2022.)
Global container freight rates were unchanged last week on average, making them +55% higher than year ago levels. Bulk cargo rates fell -4.9% in the past week, but they remain little-changed from long-run averages.
The UST 10yr yield is now at 4.70% and up +10 bps from this time Wednesday, and that is its highest level since late October 2023. The key 2-10 yield curve inversion is less at -29 bps. And their 1-5 curve inversion is marginally shallower at -50 bps. Their 3 mth-10yr curve inversion is now at -67 bps and much shallower. The Australian 10 year bond yield is now at 4.57% and up a sharp +24 bps. The China 10 year bond rate is now just under at 2.28%, up +4 bps. The NZ Government 10 year bond rate is now at 4.98% and up only +2 bps from Wednesday.
Wall Street is lower today with the S&P500 down -0.4%. Overnight European markets all fell by -0.9%, except London which rose +0.4%. Yesterday, Tokyo ended its Thursday session down a very sharp -2.2%. But Hong Kong ended up +0.5%. And Shanghai rose +0.3%. Singapore ended down -0.2%. Neither the ASX200 nor the NZX50 traded of course.
The price of gold will start today a little firmer, up +US$7 from this time Wednesday at US$2333/oz.
Oil prices are little-changed from Wednesday at just under US$83.50/bbl in the US while the international Brent price is still at just over US$87.50/bbl. In between however it has been volatile.
The Kiwi dollar starts today little-changed at just under 59.5 USc. Against the Aussie we are -¼c softer at 91.3 AUc. Against the euro we are little-changed at 55.4 euro cents. That all means our TWI-5 starts today just on 69.1 and also little-changed from Wednesday.
The bitcoin price starts today at US$64,762 and down -3.0% from this time Wednesday. Volatility over the past 24 hours has been modest however at just on +/- 1.6%.
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78 Comments
US growth slows but not inflation
But while a collapse in the US economy is just what the "soft landers" wanted, the huge GDP miss was just half the story because at the same time, the BEA reported that the GDP Deflator (price index) came in at 3.1%, hotter than the 3.0% expected and almost double the 1.6% in Q4. Worse, the all important core PCE for Q1 soared from 2.0% to 3.7%, blowing away estimates of 3.4% (we will get a more accurate core PCE print tomorrow for the month of March)..
Oh Sh*t, The Government Just Spent $11 TRILLION
Uncle Sam tried his best to buy a recovery. The sheer amount of money redistributed by the federal govt the past four years is incomprehensible. Here's the thing: the transfers didn't stop in 2021. A huge chunk of them kept going right on to today. And still it wasn't enough to stabilize an economy that is showing signs of even more weakening.
Two conjoined developments last week in the US Congress need to be understood for their far-reaching consequences for the world order that will inevitably appear on Indian shores sooner rather than later... https://newindianexpress.com/opinions/2024/ Link
I must say I have never come away any wiser after reading one of sniders posts. Maybe it's all above my pay grade but it seems to me all his YouTube videos are clickbait saying something MASSIVE has just occurred in the financial markets. 3 years of daily MASSIVE events yet nothing seems to have changed.
Further, today's US Treasury 10 year bond auction reveals median yields rise to 4.47% in yet another well-supported offer.
It’s likely to be much worse here than many other countries, given our unsustainable reliance on the property market to fuel so much of our domestic economy. Then throw in all the public sector job cuts. And the fact that net immigration will start to slow to a trickle.
Know several people who have made the call in the last few weeks to move to Aus. All work in health - couple of nurses and a doctor.
just what we need….
in return we are mostly getting dross
The house as a personal ATM has only stopped working recently, it has now been turned off and all that debt for toys still exists, you can see many toys on Facebook marketplace or Trademe now.
Going forward this will have chilling effect on large discretionary products.
Just a cheap little 2017 VW Golf.... 2nd Daughter starts driving in 2 months. I do not buy new cars.
My mother passed away a couple of years back and left them some money to buy their first car, so its not even debt funded.
Here is a good example of a real time auction - ford ranger, collapsed company
https://www.trademe.co.nz/a/motors/cars/ford/listing/4679637340?utm_sou…
Yeah but that’s nothing new. The auction houses are constantly selling off assets of liquidated companies. Granted, they are steady at the moment with a slight increase in business however I’m surprised they’re not flat out. Maybe it is a slow burn and will ramp up soon.
Two friends in their 40s have just moved to Australia, they have jobs arranged at much higher rates than they are getting here in NZ.
They do intend to return to NZ but want to go over there and try and save money to pay off the mortgage on their house in NZ
Now their daughter and partner are moving to the Gold Coast , both are police officers and say the pay increases and working conditions are much better than in NZ
We seem to training police ,nurses, doctors etc for them to go overseas for better money and conditions
I know Australia has always paid more but it appears working conditions in the health and police sector seem to be getting worse
Unfortunately there appears to be no appetite to improve salaries and conditions in these sectors
NZ is lacking a vision on how we can start to solve these problems, it’s all about slash and burn
Having said that the local councils need a big shake up,I just read an article regarding the Rotorua council and one of their managers was saying that once we get the submission we will engage consultants to write a report which should take 6 months
Why do we employ these people if they have to engage consultants for any difficult decision that comes their way
"Why do we employ these people if they have to engage consultants for any difficult decision that comes their way"
3 reasons:
- We're obsessed with public servants getting paid too much so we don't pay them enough to get the right skilled people in those jobs. My colleague is 100% qualified for a public service job but gets paid 30% more being a consultant.
- We're obsessed with keeping headcount down rather focusing on outcomes so they do not have enough capacity to actually do the work when it comes in.
- We (the public) often don't like hearing the solutions that are needed (e.g. higher rates, lower speeds, no consent for building on flood plain) so the council staff have to pay externals to provide independent advice.
All stems from the recent decades of denigrating public servants and their work.
Disagree. Senior public servants are paid plenty. the problem is not pay rates, it is politics. People who fit into the political landscape are hired. Not people who are capable of delivering. The people who are hired talk a good talk but do not deliver. To be fair though in part the responsibility rests with the State Services Commission who do this. They don't want radicals to stir things up. Their focus is 'don't rock the boat'. so they get was they were looking for, non-performing Yes Men and Women, who look and sound good, but that is all they are good for.
Have had some interesting discussions with clients over the past week or two.
Long story short, several clients with heavy exposure to retail (i.e. their product is sold by retailers or through their own stores) have said the drop off in sales activity over the past couple of months is marked.
One sells through a number of big box retailers, and said the feedback from the retailers is that people simply aren't buying irrespective of discounts offered. Demand has "collapsed" in their words.
I'm fully anticipating it having a flow on effect for my business (although to some extent I could do with a more relaxed period - as long as I've got enough to pay the bills)
Forward workloads for many seem grim.
I'm trying to amass as much cash as possible in the coffers, with a view to 'ride out the storm' if needed (and maybe have a cruisier pace of life for a while ... at least the dog will be happy if I can take her out a bit more)
I'm still getting decent inquiry volume for new work, but smaller in scope/potential.
Other peoples money...the series:
https://www.nzherald.co.nz/business/after-spending-2m-on-pins-for-covid…
$25 each. Apparently no one thought to get a quote from AliExpress
Yeah I hear you but when they are crowing that " Since 2019 when NEMA became a departmental agency we have grown exponentially from 56 staff to having a headcount of 162 staff as at September" and we are still getting no management of disasters (hello Gabrielle) these cuts seem not at all concerning.
I find this whole "public sector cost" thing very frustrating, as we have been poorly served by both sides of the political divide.
The last government clearly had the approach of "it's the thought that counts" with spending - i.e. as long as more money was shoveled in (with no consideration given to how it was being spent) then that's all you needed to do. Look at organisations like KO, and the insane growth in management headcount with seemingly no tangible real world benefits to show for it. I did a bit of contract work for an offshoot of MBIE up until recently, and some of the largesse and waste and people being paid big salaries to did literally nothing of value was an obscenity.
However, the current government has now gone arse-about-face in the wrong direction insomuch that there doesn't appear to be any great consideration given to how the cuts are being made (to some extent I guess this is also a result of the fact that the govt can instruct a budget decrease, but it's the "managerial class" that gets to decide how the costs are cut and they won't be crapping where they eat, so to speak).
Yes I agree, there seems to be no direction given to the cuts except at the highest level and this will allow for non-aligned implementation in my view. It also looks as though Ministers are not actually aware/using of their powers. Under section 2.22 (e) of the Cabinet Manual 2023-v2, the are to "determine both the policy direction and the priorities for their departments (see chapter 3);" and I would therefore be expecting them to work with Departments over a couple of months, personally (under this mandate), to determine how and where the cuts should be made.
If they do the hard work, they no longer have plausible deniability when inevitably cuts start to affect people.
Managerial cowardice. If they want to cut things, tell us what we can no longer afford and get on with it. Then face the debate against those affected.
I'd imagine a strong element of this. Perhaps an element of laziness and/or incompetence thrown in as well, and from the ACT side maybe even a pinch of "all government spending is bad spending" thrown in.
You'd think - if only from a perspective of political perception and ultimately survival - that the government would want to use every tool at its disposal to control the nature of the cuts.
After all, aside from the people directly impacted, I doubt most people care too much about the public service "management class" losing jobs - particularly the really highly paid ones. After all, the government doesn't exist to give people six figure salaries to sit in the Wellington Air NZ lounge or fire off a few emails in between meetings. I've seen enough of that first-hand to know it has been happening.
But leaving those who should be affected to make the decisions means instead you'll get cuts closer to the frontline, while the "generals" sit around miles from the trenches feeling very comfortable indeed. And it blows my mind to see the government be stupid enough not to realise they won't ultimately get the blame for it.
If they took the management class (i.e. Wellington) to task more, at the very least it would provide an escape route in terms of whom to blame if/when things go wrong.
Could you imagine a world where the 'coal face' workers were the ones to decide where the spending cuts were made?
I mean, when top and upper management are asked to deliver x% cuts to spending, do you really think they're going to start looking from the top down or bottom up?
If that genuinely worked then it would have been tried by now. Imagine the burger flippers running the McDonalds chain for example.
Most of businesses started off small, if it could scale like that without management then I doubt they would add management for no reason.
I'm not suggesting the workers run the place.
Just the first round of compiling a list of cost savings come from them. It's sometimes amazing to see just how disjointed levels of management can be from what's really happening on the shop floor. I've also seen managers who will happily keep plenty of inefficiencies up their sleeve to pull out when the pressure comes on.
"Just the first round of compiling a list of cost savings come from them"
What makes you think they don't do this? The frontline staff often have no idea what money is being spent on at an organisation-wide level, why would they?
I don't want a doctor poring over stationary expenses, IT contracts and building maintenance schedules ....
Well put.
Yet, the previous government deserves more of the blame. Completely profligate in the extent to which it bloated the army of ‘policy advisors’.
I suspect it was quite intentional, quite handy to have a huge army of generally left leaning bureaucrats to guard the castle.
"the Long March through the institutions"
They spent on policy advisors because they were developing and implementing new policies. This government hasn't developed any yet, they have just cut. They will find out as soon as they try to do anything they are going to need policy advisors and now they'll be paying double or triple the rate...
When you put it like that, both sides of this seem to be actually the same issue.
Whether the government is adding funding or removing funding, the 'how' to get to a decent outcome is missing.
Whether this is due to management capability, or more structural issues is hard to say. Perhaps the ministers involved (when going wither way) need to get a lot more prescriptive with what they want their agencies to look like post the suggested change?
Some folk here believe management will make people redundant and then contract them back at three times the cost.
Possibly that's true, and if so, certainly madness. Systemic idiocy that even Cabinet has great difficulty in dealing to.
There is not much solid to work with, it's challenging, but Cabinet has made a start.
There will be some hard talk behind the scenes, they are just not telling you about it.
Yeah, the idea that *all* departments have an equal amount of 'fat' to cut seems ludicrous. They're run by different people with different attitudes and different levels of control and competence... Some will be forced to cut genuinely useful staff, because others have been hiring profligately.
The worst thing is, it will encourage the departments to continue their hiring spree when we eventually change govt again as they will be expecting to get cut again with the then next change of govt. The departments that actually run lean and efficiently are the ones that will get hit the worst...
I'll share this again for the lols. List of RBNZ job titles. 25 Directors, 78 managers, 15 senior advisors, 12 team leaders.
Also, here's an example of how you can split one or two roles into 7:
- Associate Portfolio Manager
- Manager Portfolio Management
- Manager Portfolio Risk
- Portfolio Manager
- Senior Portfolio Adviser
- Senior Portfolio Analyst/Manager
- Senior Portfolio Manager
https://www.rbnz.govt.nz/-/media/project/sites/rbnz/files/publications/…
Imagine they earn on average $200k each, that adds to $26 mil a year. Now imagine they make some big cuts and halved those managers, govt saves $13 mil a year and can give us an 8c a week tax cut (assuming 3 mil taxpayers). And then imagine that just one of those roles actually did something useful and the RBNZ loses a few billion dollars...
I am not saying that they shouldn't get rid of bloat, but they need to be very careful, and they won't save the kind of money that people think they will.
The problem with looking at the manager title is that manager has often been handed out as a job title either to be nice or instead of a significant pay rise. Not because it's necessarily managing people or much of anything.
Heck, salesperson was renamed Business Development "Manager", for starters.
Stagflation remedies seem thin on the ground, Friedman was the first to argue that the Phillips Curve did not control for peoples Hedonic Adaption that might drive the normalisation of higher price levels. Krugman added the view that supply shocks were a also a probable driver (as they were in the 70's).
I think today's supply shocks are the failure of markets to operate to model based on monopolies of capital, market access and technology. These allow massive dysfunction and call for government intervention but I cannot see this happening when ideology seems to be the main voter agenda.
New article out on China. Deng Xiaoping created thousands of small local banks lending to small firms for business investment. This caused double-digit growth for 4 decades, lifting more people out of poverty than ever before Europe isn't overbanked! https://tandfonline.com/doi/full/10.10 Link
Until we get inflation down we won't be able to make a call on stagflation.
Meanwhile the number of initial US jobless claims fell to just 201,000, a bigger than expected retreat and the second-lowest weekly level in the past 13 weeks.
The job market will keep getting tighter due to a lower proportion of people in employment.
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