US retail expansion continues along with consumer debt. US and Canada report trade deficits. Japanese household spending slips. Carbon price races higher.
Kia ora,
Welcome to Wednesday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.
I'm David Chaston and this is the International edition from Interest.co.nz.
Today we lead with news that bond yields continue to push higher.
But first, US retail activity is still expanding at a good clip even though the year-on-year base was weakish. But those base effects are falling away and the reported gains are lower now.
However American households are just not taking on new debt like they used to. Consumer debt rose by just +US$19 bln in December, and that was much less than the downwardly revised +US$39 bln gain in the previous month. It was also below market expectations of a +US$22 bln rise. They ended the year with household debt levels up just +5.9% and barely holding CPI. From pre-pandemic, household debt is up at just a +2.9% annual rate. (In 2019, it rose +4.6%.)
But even if they are falling away at the end of the year, at those growth rates, over the whole year, the increase is still material. Total household debt grew +US$1 tln in 2021 when US GDP grew +US$2.5 tln in the same period. US household debt is now 64.9% of US economic activity (GDP). But that is down from 67.8% at the end of 2020 and 65.2% at the end of 2019.
The US trade gap in both goods and services rose 27% to hit -US$859 bln in 2021, an annual record as imports grew faster than exports. The imports surged +20.5% while exports rose +18.5% from the prior year. That deficit is -3.6% of US GDP. For reference, the NZ 2021 trade deficit on the same basis was -1.8% of NZ GDP.
The latest US Treasury bond tender, for their 3 year Note, reveals that median yields are up sharply. They were 1.54% in today's tender, up from 1.19% at the equivalent tender a month ago. Bidding levels remained strong.
In Canada, they also reported a trade deficit in December, an unexpected outcome for them and their first since May. Imports rose +3.7% while exports fell -0.9%.
Household spending in Japan unexpectedly fell -0.2% in real terms from the prior year in December 2021, after a -1.3% fall in November and missing market forecasts of a +0.3% rise.
In China, we should note that their housing market remained sluggish during the Spring Festival this year and new home sales were significantly lower than a year earlier, with smaller cities under great pressure. New home transactions slid by almost half from a year earlier and falling by -8% from the same period in 2019. No word on how prices have fared in this retrenchment.
We should also note that the price of carbon is racing higher, roiling basic food markets and prices. In the EU, their carbon price rose to €96.70/tonne overnight (NZ$167/tonne). This is up +20% in the first six weeks of 2022. Meanwhile, the New Zealand carbon price is now NZ$78.30/NZU and up +13% in the same time period. The Australian equivalent is now up over AU$55/tonne (NZ$59). So long as New Zealand only supplies food for 'the rich', we should be ok.
In Australia, the widely watched NAB business confidence survey for January was out late yesterday. That shows business conditions deteriorated in January as Omicron caused infections to reach unprecedented levels, triggering consumer caution and staff shortages. Profitability, trading conditions, and employment all fell, with the impact felt across almost all states and industries. But, businesses are looking past all that and confidence rebounded in January with firms optimistic that the outbreak would be short-lived, and consistent with this, forward orders remained steady.
The UST 10yr yield opens today at 1.96% and up another +3 bps and another two year high.
The price of gold starts today at US$1827/oz and up another +US$9 from where we left it yesterday.
However oil prices are much lower again from this time yesterday by a bit more than -US$2 at just under US$88/bbl in the US, while the international Brent price is now just over US$90/bbl. The French President reported that Russia agreed to lower the tensions on the Ukraine border, denied sheepishly by Moscow (probably for home consumption).
The Kiwi dollar will open today marginally firmer at 66.4 USc. Against the Australian dollar we are unchanged at our lower level of 93.1 AUc. Against the euro we are firmish at 58.1 euro cents. That means our TWI-5 starts today just over 70.8.
The bitcoin price is -1.4% lower since this time yesterday and now at US$43,075. Volatility over the past 24 hours has been moderate at +/- 2.9%.
You can find links to the articles mentioned today in our show notes.
And get more news affecting the economy in New Zealand from interest.co.nz.
Kia ora. I'm David Chaston and we’ll do this again tomorrow.