Dec 14, Last: –3.5% yr
- REINZ housing data showed the market weakened further in October, with sales recording their lowest level in any month for nearly a decade. Prices also continued their steady decline, falling 1.3% in the month, to be 3.5% lower than a year ago.
- However, data from a large Auckland real estate firm suggest that the market may have found a floor in November. Barfoot & Thompson reported a large rebound in house sales, suggesting that the decline in October may have been something of a head fake.
- A shift in momentum in the housing market should not be surprising. The recent stabilisation in net migration and the significant change in the interest rate outlook following the September Monetary Policy Statement will be providing some support. We await the next few months’ REINZ data for confirmation.
Dec 14, Last: 1.6%, WBC f/c: –0.9%
- Retail sales rose 1.6% in September, led by furniture and appliances, as people brought forward purchases of large household items to beat the 1 October GST increase. October saw the payback from this, as the extra sales in September were those that probably would have happened in October anyway. Note that the retail trade survey is reported ex-GST, so unlike electronic card transactions (which rose 1.2%), the October retail figures won’t be inflated by the tax increase.
- The October release will be the first to use updated industry classifications, which has led to some changes in the retail series – most notably, some services have been removed. Backdated data indicate that the new retail series is slightly more cyclical than the old one, but monthly changes are much the same. In any case, the October figures will be dominated by GST timing effects.
Dec 14, 1pm
- The Government releases its six-monthly update of the economic and fiscal situation on Dec 14. The 2011 Budget Policy Statement will also be released as will the inaugural Investment Statement, stating how the Government plans to manage its large and growing investment in taxpayers’ assets.
- Relative to Budget 2010, the picture will not be pretty. The operating deficit is forecast to widen in the near term (to around 5.5% of GDP in FY2011) and, although the deficits should begin to narrow from 2012, debt levels will be higher and net worth will fall relative to Budget 2010 forecasts.
- Strong growth in government expenses in recent years has limited the Government’s choices. NZ will require some degree of fiscal austerity in coming years if we are to avoid a blow out in debt. The 2011 Budget Policy Statement will outline what measures the Government intends to put in place to ensure they achieve their goal of returning to surplus by 2016.
Dec 16, Last: 114.1
- A sharp drop in the short-term economic outlook saw consumer confidence fall in the September 2010 quarter, with the Index reaching 114.1. However, at these levels confidence remained above long run averages and still implied a reasonable willingness to spend.
- Economic conditions over the past few months have been mixed, but in general remain supportive of above average confidence. Income tax cuts came into force on 1 October, unemployment has fallen to 6.4%, wage growth has bottomed, interest rates remain low (with some fixed rates falling), and business confidence has picked up from the lows reached mid year. Key offsets have been the very weak housing market and the rise in GST.
Dec 16, Last: 33.2%
- Business confidence rose for a second time in November, having declined through much of 2010. The economy clearly went through a soft patch in the middle part of the year, but momentum is now returning.
- We expect a similar tone in the December survey, although dry conditions in the main agricultural regions are clearly becoming more of a concern. The rise in confidence in the construction sector should be maintained now that post-quake reconstruction is in progress.
- Pricing intentions have eased in the wake of the GST hike. Anecdotally, the recent surge in world commodity prices is starting to be felt by some firms, though it’s too early yet to say whether this will seep into broader-based price pressures, as happened in 2007/08.
Dec 15, Last: 110.7
- Consumer Sentiment fell 5.3% in November, knocked lower by the RBA’s surprise rate rise and additional increases in mortgage rates by the major banks (although only one had announced its change in the survey week). All up, the fall was smaller than might have been expected though. Consumers are much more sensitised to rate moves once mortgage rates are above 7% – the average sentiment fall following a rise in the 2005-08 tightening was 9.3%. The mild decline also leaves sentiment in solidly positive territory overall.
- The December survey is in the field the week ended Dec 12. It’s likely to be influenced by: the RBA leaving rates on hold at its December meeting and signs that it expects to remain on hold for some time; but mixed economic data (scratchy Q3 GDP, surprisingly weak retail but strong jobs), and financial markets (ASX –2%, AUD/USD –3c since the November survey with high volatility in both).
Dec 14, Last: 1.2%, WBC f/c: 0.5%, Mkt f/c: 0.6%
- Much of October’s 1.2% gain was due to a 5% jump in auto sales. Ex auto rose 0.4%, as did ex auto & gas sales. The breakdown showed ongoing recovery in building materials, strength in sporting goods and a bounce in apparel, but patches of weakness in furniture, electronics, health/personal care, department stores and miscellaneous. So a mixed picture outside of auto sales.
- November unit auto sales were unchanged at October’s higher level so that could help prevent a retail decline, but this series does not always fit well with the retail auto component. Gasoline prices should not be a big driver this month. Retail hiring was very weak in November, as was household income growth; but annual chain store sales growth accelerated.
- We expect a 0.5% headline and similar ex auto and ex autos/gas readings, with any major surprise more likely to the downside.
Dec 14, PPI core Last: –0.6%, WBC f/c: 0.3%, Mkt f/c: 0.2%
Dec 15, CPI core Last: 0.0%, WBC f/c: 0.1%, Mkt f/c: 0.1%
- The 0.6% fall in the October core PPI was largely due to a 3.0% fall in auto prices and a 4.6% fall in light truck prices. Volatility in these prices is common – and October marks the beginning of the new 2011 model year – so this core PPI downside surprise might prove to be just a temporary blip, though in 2009 the bounce did not come till December.
- The October core CPI fell slightly (flat after rounding from –0.007%) due to falls in apparel, autos and education on top of subdued housing prices. The core annual CPI rose just 0.6% yr, the lowest ever according to records that stretch back to the 1950s.
- We expect modestly higher core inflation on both measures in November but to the extent we don’t, the Fed will find further vindication of its latest policy easing.
Dec 14, Last: 0-0.25%, WBC f/c: 0-0.25%, Mkt f/c: 0-0.25%
- On November 3 the Fed announced its intention to expand asset purchases by $600bn by end June 2011. That is on top of $250-300bn of reinvestment of maturing assets by June next year. The Fed said that the pace of recovery of the economy and jobs was still slow and inflation was “somewhat low” relative to target, as justification for the $75bn per month of asset purchases. The commitment to keep the 0-0.25% exceptionally low Fed funds target for an extended period was maintained. The Fed said it would regularly review the pace of security purchases.
- Recent commentary from Fed chair Bernanke alluding to the possibility of further expansion of the program is not relevant at this early stage. The occasional dissenting voice amongst the ranks of regional Fed presidents does not reflect a majority view. So the December 14 FOMC meeting should not be a major market mover –policy will be left exactly as is.
Dec 15, Last: 0.0%, WBC f/c: 0.4%, Mkt f/c: 0.3%
- US industrial production was flat in October. Factory output rose 0.5% but utilities fell 3.4% (due to mild weather) and there was no expected offset from mining which fell 0.1%. We had expected rising commodity prices to support solid mining gains. IP has not posted a gain since August – that’s the first two month period without output growth since Q2 last year.
- November signals are not too favourable. Hours worked in factories fell 0.1% in November and the production index of the national factory ISM fell 7.7pts to 55.0 (lowest in 2010). However, mining output should turn positive given the surge in commodity prices and utility output is going to bounce at some point.
- Tying these together, we expect a 0.4% industrial production rise in November, but a softer 0.2% rise in factory output.
Dec 15, New York Fed: Last: –11.1, WBC f/c: 10.0, Mkt f/c: 5.0
Dec 16, Philadelphia Fed: Last: 22.5, WBC f/c: 16.0, Mkt f/c: 14.5
- All the major and most minor business surveys, national and regional, pointed to renewed acceleration in industrial growth since Q3, after the relatively short-lived mid year slowdown which saw some regional surveys point to contracting activity. Then in November, the NY Fed index fell about 27 pts from 16 to –11, although that weaker story was not backed up by any other index – indeed the Philly Fed jumped more than 21 pts!
- We expect the December regional Fed surveys to converge somewhat again, with most of the work to be done by the NY Fed index, as it was the odd man out in November.
- We do however remain concerned about the US economic outlook in 2011 and these surveys are likely to be among the first indicators to turn sharply lower in coming months.
Dec 16, Starts: Last: –11.7%, WBC f/c: 8.0%, Mkt f/c: 6.0%
Dec 16, Permits: Last: 0.9%, WBC f/c: 2.0%, Mkt f/c: 1.5%
- October’s 12% starts fall, led by a 44% slump in multiples, coupled with downward revisions, means that the annualised pace in October was 519k. Single family starts fell 1.1%, their first fall in three months. Permits to build rose 0.9%, to a 552k pace, reflecting a 0.5% rise in single family permits and a 2.1% gain in multiples.
- Aside from the volatility on the multiples side, the single family data point to pretty much stagnant housing activity at rock bottom levels.
- Payrolls data showed construction jobs lower in November, but the size of the multiple starts fall means some sort of bounce in starts is likely. There is no obvious reason to expect any particular strength on the permits side at this stage.
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