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 world's economy is expanding in most places despite some 'hot' pressures.

The week ahead will crescendo on Wednesday with the RBNZ Monetary Policy Review and OCR decision. But there will be a lot else going on too. India and South Korea will also have rate decisions this week. In the US, they get their September CPI result along with PPI data. Japan will release sentiment survey updates, along with Australia. The EU will release retail sales data and factory order updates will come in Germany.

But first, we should note that today is the final day of the Chinese Mid-Autumn Festival and normal work will restart tomorrow. And in Australia, most of their eastern states will be on holiday today (except Victoria). NSW and Victoria have also moved on to summer time, so are back to 2 hours behind us.

But the big news over the weekend was the eye-catching headline (s.a.) rise in US non-farm payrolls (NFP) of +254,000, almost double the expected +130,000 rise. And as regular readers will know, we also check the actual change, which was almost double that, at +460,000. All very impressive. There are now 162 mln people employed in their civilian labour force. There is momentum here and the impact of +460,000 more paid workers will be widespread and impact the whole global economy.

Both their unemployment rate, at 4.1%, and the number of unemployed people, at 6.8 million, changed little in September.

And the East Coast/Gulf port strike has been settled. So that is no longer an economic irritant.

This result is of outsized change and it had an impact on the financial markets. While the equity markets didn't react, the bond markets did, juicing up benchmark UST yields noticeably. The USD rose sharply too.

The US Fed may well be restrained by this labour market surge. Cutting rates into a fast-rising economy would be inflationary and they have only just gotten things back on an even keel. By any measure, they have achieved a 'soft landing'. They seem set up for a solid 2025 expansion (provided their economic management stays professional of course).

The latest Q3 estimate of US economic activity is +2.5% which would take their nominal GDP to US$29.4 tln and +US$1.4 tln more than a year ago. It is impressive. However, given today's labour market surge, there are upside 'risks' to these estimates.

And we should note that all this is going on while the US Federal Reserve shrinks its balance sheet. It is now down to just over US$7 tln, a -US$76 bln drop in one month, a -US$900 bln drop in a year, and an almost -US$2 tln drop since its 2022 peak. Monetary policy resilience is being built back up. Yes, US Federal debt held by the public is rising in dollar terms but not as a proportion of overall economic activity (GDP). But a stock-to-flow ratio like that is a bit of a junk sideline stat. You will hardly ever see that ratio in the commercial world.

China may still be on holiday. And by official accounts, travel-related activity is 'normal' but

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