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.

And today we lead with news American inflation and consumer spending remain at levels above where the US Fed needs them to be.

But first, actual American jobless claims came in at a low 192,000 last week, lower than expected and there are now under 1.8 mln people on these benefits. This is a good way to head into their Labor Day holiday, with only the August non-farm payrolls report due now. That is out tomorrow and is expected to show a modest increase of +170,000 jobs created.

US PCE inflation was confirmed at 3.3% in July.

American personal income rose by +0.2% from the prior month in July, after a +0.3% increase in June. This was slightly below market forecasts of a +0.3% rise. But the growth in wages and salaries rose by +0.4%. Year on year, these are up +4.6%.

Meanwhile, personal spending jumped by +0.8% in July, the most since January and above market expectations. Year on year, these are up +6.4%.There is consumer resilience here that the Fed will have noticed. Note that the difference between income and spending is actually little different in dollar terms, only marginally less savings are being recorded and only a marginally lower savings rate.

Elsewhere, the Chicago PMI came in much "better" (less worse) than anyone expected and a large improvement from July, even if it is still contracting. Only just, now however, which is quite a turnaround from the recent trends.

In China, their official August PMI data is out. Their factory activity gauge improved marginally in August, but was still below the 50-point mark that separates a contraction from an expansion amid a global economic slowdown and sluggish domestic demand. Their service sector expansion cooled again and is barely at the 50 benchmark now (51.0). New export orders are weakening although new orders generally are at a steady state (50). The private Caixin equivalent monitoring is not out until tomorrow (factory) and Tuesday (services). Recently that has been marginally more optimistic than the official data.

In China, the minimum deposit for a home purchase is currently 30%. They are moving it down to 20% for 'first home buyers' (after redefining this very loosely). Interest rates are falling too. These are the practical steps for the previously announced loosening, to try and get their housing markets functioning again as an engine of growth. Developers there are facing broad insolvency risks, so the 'need' is urgent. Their financial system cannot afford property prices to fall.

Hong Kong retail sales rose +14% in July from a year ago, but this is all about the very low base in July 2022. But they fell from June to July. These retail sales actually decreased by -7.0% in the three months ending July 2023 compared with the preceding three-month period. Hong Kong is shutting down today ahead of Typhoon Saola's arrival. It is a big one.

We should keep an eye on the long-simmering border dispute between India and China. China released new "official maps" of the country which publishers worldwide are expected to respect (or face tough sanctions). But this latest version creeps the Chinese border into India and which brought a strong protest from New Delhi who had thought the issue had calmed down. Interestingly, these same maps have extended the "nine dashed line" in the South China Sea to now ten dashes. China has lost every claim in international arbitration over the sea claims, but that isn't stopping their expansion ambitions. The creeping has all the hallmarks for potential conflict.

India released its Q2-2023 economic growth data and it came in at an impressive +7.8% from a year ago. But it has to be noted that this is dominated by investment activities and the personal consumption side of this is under +6%, still good though. It is certainly a stark contrast to China. But there is growing weather stress there. The monsoon has been weak this year. Monsoon rains irrigate about half of India’s farmland and are crucial for crops such as sugar and soybeans. Food prices are under severe stress. India has more than weather-related problems however.

EU inflation was unchanged in August at 5.3% when a dip to 5.1% was anticipated The ECB is facing stubbornly embedded inflation there. Germany and France are keeping it up. Greece, Spain, and the smaller northern nations are all running much lower inflation rates.

Last week, container freight rates resumed their falls, although it was only minor in the latest update. Bulk freight rates were unchanged.

The UST 10yr yield will start today at 4.09%, down -3 bps from this time yesterday.

The price of gold will start today at US$1940/oz and down -US$4 from yesterday.

And oil prices are +US$1.50 higher at just on US$83/bbl in the US. The international Brent price is now at US$86.50/bbl.

The Kiwi dollar starts today fractionally softer than yesterday at just under 59.6 USc. Against the Aussie we are softer as well at 92 AUc. Against the euro we are firmer at 54.9 euro cents. That all means the TWI-5 is still at 68.6 and again, essentially unchanged.

The bitcoin price has fallen back today, wiping out almost all the earlier gains and is now at US$26,319 which is down another -3.1% from yesterday. Volatility over the past 24 hours has been moderate at just under +/- 2.7%.

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.