Summary

  • New Zealand Activity Index unveiled on 30 June, has been created to measure monthly economic movements in NZ through 8 indicators.
  • As per Treasury’s 31 July update, retail spending surged during strict alerts in NZ, while retail card spending remained low.
  • Jobs started to bounce back over May and June than the significant drop in April but stayed below pre-coronavirus levels.
  • Households outlook has improved with a fall in mortgage deferral requests and missed payments on consumer loans.
  • V-shaped recovery can be a possibility after a steep contraction in Q2 but remains contingent on the potential risk of the second wave of COVID-19.

COVID-19 has made it very challenging to monitor and measure the fluctuations in economies with differing complexities, and degree of effects across multiple factors.

To make the task of measuring economic activity easier, NZAC (New Zealand Activity Index) was unveiled on 30 June that summarises many monthly indicators of economic movement and is a broad measure of economic activity. The index has been introduced to offer a grainier and more well-timed signal of activities in the NZ economy. NZAC has been created by staff at Stats NZ, Treasury and Reserve Bank of New Zealand.

NZAC is a composite index that tracks the economic activity of NZ through 8 monthly statistics including joblessness, consumer expenditure, traffic volumes, employment vacancies, electricity generation, economic outlook, and manufacturing prospects. The index would be revised approximately14 days after the end of every month.

Tim Ng, Chief Economic Advisor (Treasury) stated that NZAC, as a weighted average of monthly indicators, offers a broader measure than each individual indicator by itself. The index hits a decent equilibrium amid incorporating sufficient vital statistics to make sure decent quality index and preserve well-timed publication.

The first edition of the index showed a 19% YoY drop in the economic activity in April 2020, while a strong rebound was observed in May on the back of a strong recovery in electronic card spending, and light and heavy traffic movements.

However, May 2020 levels stayed 6.5% down compared to May 2019.

Let’s have a look at some trends that can affect NZAC performance in the near term.

Retail spending remains robust

As per the latest update by Treasury on 31 July, retail spending stayed above 2019 levels for the past 2 months and was propelled by spending at supermarkets, liquor stores and pharmacies that have been lifted even during the strictest Alert levels in NZ. When excluding this type of spending, retail card spending fell below 2019 levels in the week to 26 July post keeping steady, 3 weeks before. Gross expenditure on electronic cards rose 0.6% in 2019 compared to the same period last year.

ANZ-Roy Morgan Index showed a drop in consumer confidence, which fell for the 5th week consecutively to its lowest levels since April. As per a survey conducted by ABS, 9% of the survey respondents stated that they do not believe that their lives would ever return to pre-pandemic levels.

Information by Stats NZ on electronic card transactions accounts for about 50% of the private consumption, so the effects for total household spending are not yet apparent. The release of the June quarter Retail Trade Survey on 24 August would give a clear-cut illustration of just how robust private consumption has been.

Job figures rise

As of 24 July, nearly 20k individuals received the COVID-19 Income Relief Payment (CIRP), a rise of 1,400 on the week before. The number of JobSeeker support beneficiaries rose just marginally, although 100 more recipients were transferred onto CIRP. The total number of people obtaining income support (JobSeeker and CIRP) stood at 212,400, up 1,500 on the week before, and 67,000 since 20 March. The weekly rise in total income support has decelerated in each of the last 4 weeks.

Job numbers have rebounded over May and June, subsequent to a significant drop in April, but stayed below pre-coronavirus levels. The most substantially affected industries consist of accommodation and food, arts, and recreation services. Gross earnings have also fallen 0.9% in the quarter.

Total payroll employment in Australia declined by 1.1% between mid-June and mid-July, with Victoria suffering a stronger 2.2% fall. Payroll positions are down 5.6% nationwide and 7.3% in the hardest-hit state of Victoria relative to mid-March. Relative to mid-March, overall wages have started to fall, and are down 4.8% at the national level.

Households position advanced and building consents rose

The publication of the latest consumer loan metrics from Reserve Bank demonstrates the impact coronavirus has on enterprises, households, and the banking sector. The report showed the number of fresh requests for mortgage deferral peaked in the week to 10 April.

The number of new deferral requests fell to 400 in the week to 17 July, while the current bank exposure to consumer missed payments for the week stood at $427 million. However, missed company loan payments have been on the rise, with almost 18k businesses skipping loan payments worth $1.7 billion in the same week.

New dwelling consents increased 0.5% in June to 20.4% compared to June 2019, enhanced by a record number of new flats, townhouses and units consented. However, the rise comes after a very weak period due to lockdown measures. The Treasury foresees that heightened uncertainty rates and reduced demand from a mix of lower wages and net migration would witness consent issuance ease across the coming year.

A V-shaped recovery might be witnessed after a steep fall in Q2. The employment sub-index has disappointed in most areas, growing alarms about the sustainability of the demand recovery, especially when fiscal support is loosened. Further, waves of coronavirus infections would persist being a hindrance to business and consumer confidence.

 

 


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