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 holiday edition from Interest.co.nz.

Today we lead with news the expected global recession in 2023 seems a way off yet

Although the headlines in the US are all about how many job cuts are coming, especially from Big Tech, in fact the December data did not show that as significant. First, the December layoff report said there were -43,600 cuts in December, -43% less than the 76,835 announced in November. But that is up sharply from the 19,000 cuts announced in the same month in 2021.

Second, the precursor ADP Employment Report ahead of tomorrow's official non-farm payrolls report said private payrolls expanded +235,000 in December and well above the +150,000 expected. Large companies in the West did reduce payrolls, but that was more than made up by a hiring surge in the South. Forecasts for the December non-farm payrolls gain are currently +200,000.

Initial jobless claims were surprisingly low last week as well. They rose for seasonal reasons, but by far less than expected. There are now 1.7 mln people on these benefits.

These strong labour market indicators are driving equity markets lower as investors realise the Fed will be emboldened to stay fully engaged in the inflation fight. High and rising payrolls are not a sign the Fed has done enough yet to cool the American economy to get on top of inflation. And the IMF thinks the Fed still has a long way to go before they succeed.

In more American labour market news, their Federal Trade Commission is proposing to outlaw non-compete clauses in employment contracts. Calling the practice "exploitative", the agency is moving to ban the clauses, which would allow workers to take jobs with rival companies or start competing businesses without the threat of being sued. They say it could increase workers earnings by +US$300 bln per year. This proposal will generate an almighty fight with business.

Meanwhile, the US trade deficit narrowed to -$62 bln in November, the lowest since September 2020, and below forecasts of a -$73 deficit for the month. It reflects a sharp decrease in the goods deficit and an increase in the services surplus. Total exports were down -2% while total imports fell more than -6%. Their trade deficits with both China and the EU both shrank. For the year to November, the American trade deficit ran at -US$965 bln or -3.8% of GDP. New Zealand's equivalent deficit is -4.8% of GDP.

American petrol prices are back to the same level they were a year ago, so no inflationary impulse there.

In housing markets, Auckland isn't the only big city turning in weak December real estate results. Things are just as tough, even tougher, in Toronto.

And the top end of the Chinese market also experienced a sharp downturn last year.

In Japan, consumer sentiment remained low in December but it did rise off its recent lows. The same survey revealed that almost everyone still thinks prices will rise, a view that has been almost universal in 2022.

In Australia, universities there have reported huge demand from foreign students, with visa applications +40% above pre-COVID levels, driven by demand from India. A survey of prospective Indian international students found that 29% listed Canada as their preferred destination followed by Australia (21%), the UK (18%) and the US (17%).

Container freight rates were little-changed again last week, with the main weakness being in the outbound China trade. Bulk cargo rates fell sharply, and heading back down to pre-pandemic levels again. One shipping boss said ocean shipping is heading for a 'great recession'.

The UST 10yr yield started today at 3.72%, and little-changed from yesterday. 

The price of gold will open today at US$1833/oz and down -US$23 from yesterday.

And oil prices start today unchanged from yesterday's levels at just under US$74/bbl in the US while the international Brent price is just over US$78.50/bbl and still near its yearly lows.

The Kiwi dollar has fallen back almost a full -1c to 62.2 USc on a surging greenback. Against the Australian dollar however we are firmish at 92.3 AUc. Against the euro we are softish at 59.1 euro cents with a -¼c dip. That all means our TWI-5 starts today at 70.6, down a net -40 bps from yesterday.

The bitcoin price is now at US$16,824 and a mere -0.4% lower than this time yesterday. Volatility over the past 24 hours has remained very low at just +/- 0.4%.

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 will do this on Monday.