NEW ZEALAND: QSBO Signals Soft Jobs Market & Demand, Higher Chance Of 50bp
With the NZIER’s Quarterly Survey of Business Opinion (QSBO) showing a deterioration in the assessment of the outlook and only 4% of firms expecting to hire in Q4, the possibility of a 50bp rate cut on October 8 has increased. A net 15% believe that economic conditions will improve over the coming months down from 26%, which is concerning given 250bp of easing and a less uncertain global backdrop.
- The NZIER is forecasting a 25bp rate cut on Wednesday with another on 26 November.
- There was an increase in firms raising prices with a net 11% in Q3 up from 1% reducing them in Q2. The NZIER expects inflation to rise just above 3% before moderating to 2%, the band’s mid-point, over the next 12 months pressured by excess capacity.
- The Q3 labour market data may also be poor as a net 23% of firms reduced staffing while only 3% said that finding employees was a constraint on business. Both indicators suggest excess capacity in the labour market.
- A net 14% recorded a fall in Q3 business but 9% expect it to improve in Q4. NZIER notes that firms have been disappointed compared to their expectations for the last year. Lack of sales is the main business constraint.
- More firms plan to reduce investment over the year ahead in both plant & equipment and building. Uncertainty regarding the global economy remains a problem.
- In terms of sectors, manufacturing was the least optimistic regarding the outlook while retail was the most positive. Construction reported continued lacklustre demand with a net 20% cutting prices.
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LOOK AHEAD: US Macro: PPI (Wed) and CPI (Thu) Inflation
US PPI inflation is released on Wednesday before CPI inflation on Thursday, an unusual ordering that should see core PCE implications dialled in after the CPI release rather than the usual wide range waiting for specific PPI details. PPI will be watched more closely than usual this month after a far stronger than expected jump in last month’s July report fired a warning short over tariff-based cost pressures starting to feed through. That included a 0.6% M/M increase in our preferred core series of PPI ex food, energy & trade services, which strips out items such as the then booming portfolio management & investment advice category following the strength in equity markets. It's too early to gauge an accurate sense of analyst expectations for August.
CPI inflation on Thursday will then be the last major release ahead of the Sep 17 FOMC decision. Consensus looks for core CPI at 0.3% M/M after the 0.32% M/M in July, another monthly increase comfortably above a pace consistent with 2% inflation. August should in theory start to see the largest tariff impacts along with September and possibly October. Returning to July’s report, core goods inflation was softer than expected, at a still solid (by core goods standards) 0.2% M/M for a second month running but about half that of 0.4% expected by analysts. Instead, non-housing core services surprised higher. The latter was a “dangerous” development in the words of a usually dovish Chicago Fed’s Goolsbee (’25 voter), who speaking after Friday’s payrolls report is still undecided on a September cut whilst looking for August inflation data “to get more information”.
LOOK AHEAD: US Macro: Payrolls Preliminary Benchmark Revisions (Tue)
- The BLS on Tuesday will publish preliminary estimates of benchmark revisions, based off QCEW data for Q1.
- These will give an indication of the actual benchmark revisions on the Mar 2025 level of payrolls due with the Jan 2026 payrolls report released in early February.
- Bear in mind that the final benchmark estimate tends to nearly always be more negative than the preliminary figure – see historical values to the right.
- That doesn’t mean they can’t be large again after last year’s historically negative revision that lowered the level of payrolls by ~600k. Initial estimates we’ve seen look for another large downward revision, with the smallest being worth -550k but with wide ranges higher.
FED: Barclays Adds A Cut To 2025 Fed View
Barclays analysts now expect three Fed cuts in the remainder of the year, adding October to their pre-existing call for 25bp reductions in September and December. "Given the disappointing August employment report, we expect the FOMC to see more elevated downside risks to the employment side of the mandate."
- As for a 50bp September cut, "we think that the FOMC will view [that] as sending too strong a signal that labor market conditions are deteriorating. Indeed, we think that participants such as Powell understand that the slower pace of payroll employment reflects at least, in part, slower labor supply, which does not translate into increased labor market slack."
- For 2026 they continue to expect 25bp cuts in March and June to 3.00-3.25%, but "we do not think the FOMC will be able to cut rates more than twice next year, as we think that activity will show some slight acceleration, with the economy adapting to the new tariff environment and fiscal policy providing some support, and the unemployment rate will revert down amid limited increase in labor supply."
