Eyes on US employment growth> China's factories still contracting. India gets a growth spurt. German employment higher. Aussie construction work slumps, house prices fall.
Kia ora,
Welcome to Thursday’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 supply chain cost pressures seem to be easing now.
But first, US mortgage applications fell again last week and are now -23% lower than year-ago levels. Benchmark mortgage interest rates rose to 5.8% which puts them back to their highest since 2008. The American housing markets is in the doldrums, undermined by those rising rates.
On Saturday NZT we get the next American jobs report and today we got the ADP pre-cursor employment report. It has been tracking the non-farm payroll quite well in its revised format. But they say the era of supercharged jobs gains may be over. They report a shift toward a more conservative pace of hiring in August, possibly as companies try to decipher their economy's conflicting signals. They say American jobs grew just +132,000 in August from July. The latest consensus for the non-farm payroll gains is +300,000 however, suggesting the strong jobs expansion remains on track.
The ISM Chicago PMI for August in this heartland manufacturing region has the moderate expansion rolling on even if not as hot as it has been. But new order levels were up and order backlogs are growing in their region they say. They also say jobs are now easier to hire for.
The official measure of Chinese factory activity contracted for a second straight month and the fifth decline in the past six months. These signs of weakness are building up now. Meanwhile the official Chinese service sector PMI is still expanding but at a slower pace. They can take some heart from that expansion even if it is their slowest in three months. The extended weakness has some analysts reducing their 2022 growth estimates down to just 3% and for such a large economy, that is a long way from Beijing's target of "about 5½%".
China needs its stimulus projects to work, to pay off not only now with employment and spreading demand, but long-term by avoiding these 'investments' becoming white elephants. Sadly there is no assurance that will be the case. We may have underestimated how much is being committed to these projects. Some say US$1 tln, some say up to three times that once debt and company investments are added to the official largess. But will China get anything like US$3 tln in benefit from these projects, however laudable they may sound? It is pretty clear that all the prior stimulus they invested hasn't worked long term as planned - or they wouldn't have needed the new stuff. If this is rinse-and-repeat, we are witnessing waste on an epic scale.
It is not only the Chinese property market that is causing company pain, their airlines are reporting deep losses as well.
India said its economy expanded +13.5% in Q2-2022 from the same quarter a year ago, the most in a year, but less than the expected +15.2% gain. It is actually a remarkable spurt for the world's sixth largest economy. And it stands in stark contrast to China at the moment. But the Indian spurt, which came after a series of much lower gains, isn't expected to be repeated any time soon.
Germany reported its unemployment rate as 3.2% in July, tighter than for June, and given their inflation stress, a somewhat surprising result. They have unusual pressures but they are yet to show up in their labour market. Employment is still expanding.
The EU said its CPI inflation rate was 9.1% across the zone in August, a small rise from an already high level. They also said their core inflation rate was 4.3% however. But food prices were up more than +10% in August from a year ago.
Russia reported a series of economic statistics overnight and none of them were positive, except perhaps their jobless rate which officially held at a low 3.9% level in June - which seems odd given all the other very negative data.
Russia said it will shut down its NordStream 1 pipeline to Europe "for three days, for maintenance". The Europeans were expecting this new pressure. It not the first such shutdown and has only been operating at 20% anyway.
In Australia, total construction work done unexpectedly fell by -3.8% on a quarter-on-quarter basis for the three months to June, sharply missing expectations of a +0.9% rise and following a -0.9% fall in the first quarter. It was the second straight of quarter decline in construction work done, due to a fall in building work done (-4.6%), residential (-6.8%), non-residential (-1.1%), and engineering work (-2.7%). Don't move to Australia for a construction job.
Australian house prices took their biggest fall in 40 years in August, down -4.7% from year-ago levels. Prices in Sydney led the way down. Sydney is currently stuck in the chaos of public transport strikes, making life very difficult at present if you commute.
Internationally, container shipping costs are falling faster now, down -4% last week, down almost -40% in a year although they are still well above five-year averages. Freight rates for bulk cargoes are falling fast now too and are now lower than pre-pandemic levels. The extreme cost pressure surrounding international supply chains are easing quickly now.
The UST 10yr yield starts today at 3.14% and up +2 bps from this time yesterday.
The price of gold will open today at US$1714/oz and down -US$10 from this time yesterday.
And oil prices start today down -US$1.50/bbl at just under US$90/bbl in the US while the international Brent price is now just under US$96/bbl.
The Kiwi dollar will open today at 61.2 USc and little-changed from this time yesterday. Against the Australian dollar we still down at 89.4 AUc. Against the euro we are down to 61 euro cents. That all means our TWI-5 starts today at 70.5 and another small retreat.
The bitcoin price is now at US$19,982 and up +1.4% from this time yesterday. Volatility over the past 24 hours has been moderate at just on +/- 2.0%.
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.