The US economy holding up well

Economy Watch

Kia ora,

Welcome to Friday’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 the gloomsters are going to have to wait even longer for a US slowdown and 'recession'. Markets are reducing the chance of a Fed rate cut in mid-September.

First up in the US, initial jobless claims came in less than last week, a surprise because an increase was expected. But to be fair the actual shift wasn't large.

But markets took more notice of the surprisingly strong +1% rise in retail sales in July, far more than expected. Americans are still spending big - on cars, appliances and furniture - in a surprise burst of activity that’s propelling their economy and helping shake off fears of an impending downturn. This was the largest jump in more than two years. Car sales were particularly strong. But there were gains across the board at restaurants and bars, as well in groceries, electronics, furniture and health goods. Year on year, American retail sales were up +4.0%, delivering real, inflation-adjusted gains.

Helping was that business inventory growth was minimal, so their inventory-to-sales ratio stayed quite healthy.

But spoiling the party somewhat was a small drop in industrial production in July and one that was more than expected from June but only easing -0.2% from a year ago.

However, the New York State factory survey improved more than expected, although the Philly Fed's similar survey turned lower. Both are positive about the future however.

In Canada, despite central bank rate cuts there, home sales fell in July. A looming rail strike there may not help future sales.

In Japan, they released their Q2-2024 GDP result late yesterday and it expanded a very strong +3.1%, way more than the +2.1% expected, and far better than the -2.3% fall in Q1-2024.

In India, their July passenger vehicle sales fell almost -2% in July from the same month a year ago. This was not expected, but to be fair these are settling into a higher level than has been seen in over the past 20 years, just not as high as you might expect given their booming economy. But two-wheeler growth was a very strong +12.5%.

In China, the data out yesterday reinforced their tough economic conditions are extending there. Retail sales were up just +2.7% from a year ago, industrial production rose less than expected at +5.1% but electricity production (a better metric?) rose only +2.5%, and prices for new houses dropped -4.9% and the most since 2015. For second-hand houses, who knows? No cities reported year-on-year gains, the first time that has happened.

In Australia, their July labour force rose with now 14.47 mln employed (+58,000). Their participation rate rose again (to 67.1%), and their jobless rate ticked up to 4.2%, or by +23,900 to 637,000. Full-time adult average weekly total earnings were up +4.6% to AU$1994 (NZ$2200).

And staying in Australia, consumer inflation expectations are high and not easing. They rose to 4.5% in August from 4.3% in July, the highest level since April and similar to what they were in April 2023. The RBA will be unhappy about the stickiness.

And we should probably note that UBS said it will sell-off the US$2 bln real estate fund it acquired when it bought Credit Suisse. It joins many other professional investors selling out of troubled commercial property markets, especially office buildings.

Global container freight rates eased ever-so-slightly again last week but they are still +280% higher than year-ago levels. The core pressures are unchanged. Bulk cargo rates are little-changed this week, but are still more than +50% higher than year-ago levels.

And we should probably note that iron ore prices have slipped below US$100/tonne now in a move down that started at the end of 2023, now back to levels first seen a decade ago. The 2021 peaks are long gone and the general trend will stay negative until China recovers. Even India can't arrest this slip.

The UST 10yr yield is now at just on 3.93% and up +10 bps from yesterday in reaction to the strong US retail sales data.

The price of gold will start today up +US$13 from yesterday at US$2454/oz.

Oil prices are +50 USc firmer at just under US$77.50/bbl in the US while the international Brent price is up +US$1, now just on US$80.50/bbl.

The Kiwi dollar starts today little-changed from this time yesterday, still just on 60 USc. A week ago (pre the OCR cut) it was at exactly the same level. Against the Aussie we are down -30 bps from yesterday at 90.6 AUc. Against the euro we are up +10 bps at 54.6 euro cents. That all means our TWI-5 starts today at 68.5 and unchanged.

The bitcoin price starts today at US$59,326 and up a mere +0.3% from this time yesterday. Volatility over the past 24 hours has been modest at just on +/- 1.8%.

You can find links to the articles mentioned today in our show notes.

You can get more news affecting the economy in New Zealand from interest.co.nz.

Kia ora. I'm David Chaston. And we will do this again on Monday.