Episode Details

Kia ora,

Welcome to Monday’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 big northern hemisphere countries are starting to report their August activity levels - and most of them are fine.

But first in China, their official August PMIs were released over the weekend. Their factory PMI fell a bit further into a minor contraction. New orders, foreign sales, and buying levels all dropped for a fourth consecutive month. Their employment weakness also persisted in this sector.

However, the Chinese service sector lifted to maintain a minor expansion, but is still far below the February to May levels. In that broader perspective the August lift seems within the margin of error.

The private Caixin versions of these PMIs should be released later today.

Unofficial data of housing sales volumes and values in China weren't encouraging in August. More developers are being ordered to liquidate, unaided by any return of demand for housing. The top 100 developers faced a -10% retreat in sales in August from July, down more than a quarter from August 2023.

South Korean exports were more than +11% higher in August than a year ago, but that undershot the expected +13% rise, and they rose almost +14% in July. The growth of exports to China lagged the overall gains but those to the EU and the USA outperformed. But China remains their top export destination.

Japanese industrial production expanded in July, a good recovery from the June dip. But Japanese retail sales rose at a slightly slower rate than expected.

In the US, they are ending their summer with a major national three-day-weekend holiday, Labor Day. Their markets return in full on Wednesday NZ time.

But before this weekend started, another piece in the policy jigsaw was put in place for the US Fed, the PCE inflation level and that came in low and little-changed, confirming the conditions for a September rate cut. The July core PCE price index rose just +0.2% from the previous month and the market-expected change. The +0.2% monthly increase in headline PCE prices was also in line with expectations. That puts it +2.6% up on a year ago. Nothing disturbed market expectations here - although it probably means the chance of a -50 bps Fed cut is now off the table.

Perhaps helping, there was a slight improvement in the Chicago PMI from the American industrial heartland although this is more of a "contracting less" situation rather than an expansion. New order levels edged up.

Canada said its economy grew at a good +2.1% rate in Q2-2024 and that was better than what was expected by analysts there (+1.8%). Higher wages and savings helped, which drove more