US tariffs bring higher prices, slower growth

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 trade and tariffs are in the headlines, but their impact of higher inflation and slower economic activity are just starting to be seen.

US initial jobless claims rose sharply last week in seasonally adjusted terms, the largest rise in five month. In actual terms they were basically unchanged when seasonal factors would have normally brought a good reduction in claims. These initial claim levels are +10% high that year ago levels and there are now 2.17 mln people on these jobless benefits, also much higher than a year ago.

US durable goods orders rose +3.1% in January from December, but there was a sharpish revision lower in the December data. The January level is +4.3% higher than year-ago levels. Non-defense capital goods were up +2.2% from a year ago.

The second estimate of Q4-2024 GDP came in unchanged from the first at +2.3% growth. It would have been more but they noticed higher inflation in the period which trimmed the rising nominal expansion in the period.

Pending home sales in the United States fell -5.2% in January from a year ago, following a -5% drop in December.

And today's downbeat American economic data releases extended to the Kansas City Fed factory survey which fell in February, contracting by its most in five months.

The US Administration said China will be hit with a new 10% tariff, the latest salvo in the US president's steadily escalating trade fights. That is on top of the earlier 10% already in place. The President also said he intended to move forward with a threatened 25% tax on imports from Canada and Mexico, which is set to come into effect on 4 March.

So it is little wonder that inflation expectations are rising among Americans. Tariffs are a tax on yourself, and higher prices either result from more expensive imported goods, or they allow local producers to face much less price competition so those prices rise too. It will be impossible for the US Fed to ignore, and bond markets aren't either.

But north of the border, Canada said weekly earnings are rising faster there. They rose +5.8% in December from a year ago in data released overnight, the fastest pace since March 2021.

And staying in Canada, the reaction to the endless Trump insults are generating a "Buy Canada, Bye America" surge, and now apps are sprouting up enabling such choices right in shop and supermarket aisles. Apparently there are export markets for such services, especially in Europe.

The tracking of consumer and business sentiment in the EU shows it is either holding or moving up in January. Now almost as may are positive as negative, which is the best they have had in almost three years, and slightly better than expected.

With all the US tariff news, it will be no surprise to learn that container freight rates fell another -6% last week, taking them -30% lower than year-ago levels, and now only +85% higher than pre-pandemic levels. Usage of the Suez Canal is normalising now too. But bulk cargo rates shot up +32% last week from the week before to be -40% lower than year-ago levels.

The UST 10yr yield is at 4.29%, up +2 bps from yesterday at this time.

The price of gold will start today at just under US$2875/oz and down -US$35 from yesterday.

Oil prices are up +US$1 at on US$70/bbl in the US and the international Brent price is now under US$74/bbl.

The Kiwi dollar is now at 56.5 USc and down -60 bps from yesterday. Against the Aussie we are unchanged at 90.3 AUc. Against the euro we are down -10 bps at 54.2 euro cents. That all means our TWI-5 starts today just over 66.5, and down a net -40 bps from yesterday.

The bitcoin price starts today at US$84,968 and -2.3% from this time yesterday. It is currently very much in a bear phase with prices only rising when there is minor volume, but falling sharply when there is high volume. Sellers are choosing their timing, and there are a lot of them. Volatility over the past 24 hours has been moderate at +/- 2.8%. 

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.