US economy expands fast, just not as fast as expected

Kia ora,

Welcome to Friday's Economy Watch where we follow the economic events and trends that affect New Zealand.

I'm David Chaston and this is the International edition from Interest.co.nz.

Today we lead with news the world's largest economy is now bigger than its pre-pandemic level but the push up isn't what they had hoped.

The US reported its Q2 economic growth as +6.5% pa which was slightly higher than the +6.3% Q1 expansion. But this was a major miss when +8.5% growth was expected even though the US economy is now larger than its pre-pandemic level. While household consumption roared back, this was undermined by smaller new house building activity, smaller federal government spending that a year ago, and the surge in imports, all factors we have covered in these daily reports. The size of their impact has caught most analysts by surprise. But being underpinned by strong core household activity lessens the concerns about this miss. This is 'advance' data, so tow more updates are due and may push the final result back up toward the expected result.

US PCE (personal consumption expenditure) prices rose more than expected, up +6.4% and well above expectations. This is the inflation measure the US Fed looks to more than the CPI.

Initial jobless claims came in high again last week, extending the higher levels we reported for the prior week. The actual level was +345,000 taking the total number of people on this support to 3.2 million.

US pending home sales levels for June disappointed too, falling -1.9% from a year ago when a slight rise was expected. Sharply higher prices for residential housing is taking the top off demand faster than thought.

In China, a new type of electric battery has gone into production, one that uses less expensive mineral components.

The German inflation rate jumped sharply to +3.8% in July, far above the +2.3% in June, and well above the expected +3.3%. The cost of goods were up a rather startling +5.4% year-on-year, and if it wasn't for quite low rises for services, the overall result could have been much higher. 

German employment grew strongly in June however, and their jobless numbers fell far more than expected. The employment gains were that largest since the pandemic affected them. Their jobless rate is down at 3.7% although that is unchanged from May.

Globally, aircargo markets are strong. June industry-wide cargo tonne-kilometres (CTKs) were almost +10% above June 2019 levels and air cargo drivers point to further growth ahead. But most of that strength was in North American markets; Asia/Pacific markets are flat on that basis.

ANZ is reported as saying that they expect tens of thousands of Sydneysiders will lose their jobs because of the new strict lockdown measures and the length of time the new lockdown could last. They say between 50,000 and 60,000 workers in NSW could lose jobs.

The UST 10yr yield starts today at just on 1.27% and a +1 bp change. 

The price of gold is now just over US$1831 which is up almost +2%, or a large +US$34 higher than this time yesterday. We are now back to levels last seen in mid-June.

Oil prices have risen by +US$1 and in the US they are now just over US$73/bbl, while the international Brent price is still just under US$75/bbl.

The Kiwi dollar opens today just on 70.1 USc and more than +¾c higher than this time yesterday. Against the Australian dollar we are +40 bps higher at 94.8 AUc. Against the euro we are also higher at 59 euro cents. That means our TWI-5 starts today at 72.8 after the overnight turn up.

The bitcoin price is now at US$39,771 and up +1.2% since this time on yesterday. Volatility in the past 24 hours has been moderate at +/- 2.3%.

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 on Monday.