Current Events in the US and New Zealand Economies
The US government shutdown, which was the longest in history, has finally come to an end. The shutdown lasted for 43 days and had significant effects on the economy. President Trump signed a temporary funding bill, securing funding until the end of January. However, there is still a risk of another shutdown early next year.
Impact of the US Government Shutdown
The shutdown had a substantial impact on the US economy, with the Congressional Budget Office estimating that a six-week government closure would reduce US real GDP by 1.5%pts for the December quarter. Although the government has reopened, the damage has already been done, and it is expected to take days or even weeks for things to return to normal.
US Economic Data
The US Bureau of Labor Statistics is set to release September’s missed payrolls report, but the release of October data will be more complicated due to the lack of data collection during the shutdown. As a result, statisticians will have to resort to imputation methods to fill in the blanks, which may lack reliability.
Good News for New Zealand
On a positive note, President Trump signed an order to remove reciprocal tariffs on a number of agricultural imports, including beef products. This is good news for New Zealand, as meat is the country’s largest export to the US. The removal of tariffs is expected to have a positive impact on New Zealand’s economy.
New Zealand’s Economy
Domestically, a number of high-frequency data points have painted a mixed picture of how the economy is progressing. Short-term visitor arrival numbers for September have recovered almost 90% of pre-COVID peak levels, which is a positive sign for the tourism industry. However, net migration and Kiwi departures remain weak, which is taking away from the economy’s demand pool and keeping the housing market subdued.
Manufacturing and Services Sector
The Manufacturing PMI has recorded its fourth consecutive month at expansionary levels, although activity remains relatively subdued. The services sector still has a while to go, with the PSI lifting to 48.7 from 48.3. Consumer spending continues to disappoint, with retail spend up only 0.2% in September.
Chart of the Week: Inflation Expectations
The RBNZ’s latest Survey of Inflation Expectations showed that inflation expectations are well anchored around 2%. Expectations for where inflation would be in 2 years’ time were unchanged at 2.18%, while expectations of inflation in 5 years’ time dropped 4bps to 2.22%. This result is comforting for the RBNZ and supports the delivery of a 25bps cut.
Event of the Week: Lunch with Professor Prasanna Gai
Kiwibank had the pleasure of hosting Professor Prasanna Gai, a member of the RBNZ Monetary Policy Committee, at a client event. The discussion covered various topics, including macroeconomics, monetary policy, financial markets, geopolitics, and central bank independence. Some key takeaways from the event include the impact of tariffs on the economy, the importance of central bank communication, and the challenges of implementing monetary policy.
Conclusion
In conclusion, the US government shutdown has had significant effects on the economy, but the removal of tariffs on agricultural imports is good news for New Zealand. Domestically, the economy is showing mixed signals, with some positive signs in the tourism industry, but weakness in net migration and consumer spending. The RBNZ’s Survey of Inflation Expectations shows that inflation expectations are well anchored, which supports the delivery of a 25bps cut. Overall, the economy is stabilizing, but there are still challenges ahead.
