Generate's Investment Specialist Greg Smith joined Mike Hosking on ZB again this morning to discuss why there are still positive takeaways for Kiwi manufacturing, despite the sector slipping back into contraction territory in August.
Encouragingly, there are also some green shoots in retail, with Kiwi card spending rising for the third month in a row. In contrast, US consumers are less optimistic, with confidence falling to its lowest level since May amid concerns about tariffs and their longer-term impact on inflation. Greg noted though that spirits should be lifted by the Fed meeting this week, with officials expected to cut rates by at least 0.25%.
Listen to the 15 September 2025 recording from The Mike Hosking Breakfast on Newstalk ZB here:
Or read the transcript below:
Greg Smith, good morning to you.
Morning Mike.
Speaking of slipping back, we did too. Manufacturing I thought we're on the rise, but we’re not what happened there?
Yeah, that's right. We did actually say that a month ago that it might be a little bit premature to pop those champagne corks. And so it's proved. So the BNZ performance of manufacturing index, it moved from an expansionary 52.8 to a contractionary 49.9 in August. So manufacturers still look to be doing it tough, although perhaps you can spin it a little positively. Let's do that after those disappointing sporting results over the weekend!
The three-month average for the PMI edged up to 50.6 so you could say that's an encouraging trend. New orders are in pretty good shape, highest level in three years, 55.2 there, third consecutive expansion month, and the gap to inventory is the biggest since November 2021. But the recovery in the manufacturing sector, if we do get one, is off a very weak base, and the five sub-indices are below their long-term average.
So manufacturers are still not that confident, really. Production levels they've gone backwards and actually about the same as a year ago, which is a little bit disappointing when you think about the number of cuts we've had to the official cash rate over that period. It's hard to call whether the manufacturing sector is actually contributing positively to the economy in the current quarter.
What we do know is that core manufacturing sales volumes, they fell 1.9% quarter on quarter in the three months to June. So obviously that's not going to help the GDP read we get this week, obviously a bit lagged, and expected to show the economy contracted around .3%.
But what about retail?
But hey, let's celebrate something. So there's some good news, and this might benefit the manufacturing sector down the track and the economy in the current quarter, and it is from the retail sector. So Mike Kiwi consumers have their wallets out. So the value of electronic card transactions in retail industries that rose .7% to 6.94 billion in August on a seasonally adjusted basis, and it’s not a one-off. This is the third straight monthly increase. It's the largest this year. Core retail industries spend they’re up .9% and the hospo sector has something to celebrate. They saw one of the larger increases, spending there up 21 million or 1.4% that's the biggest since November 2024.
It wasn't just hospo that was seeing high spend, apparel that was at 1.8%, durables, long-lasting items, that was up half a percent, and consumables that rose .3%. Total value of spending that increased by 41 million to 6.9 billion. One caveat, these numbers aren't inflation-adjusted, so you could say this might be just higher prices. But we're also seeing sentiment improve in terms of number of transactions. So 174 million last month. That's up a million from July, around about $54 per transaction. Total amount spent – 9.3 billion. So Mike, let's start talking about green shoots in consumer land. We've got more rate cuts on the way that should help sentiment that'll be welcomed by retailers heading into the end of the year.
Good stuff. Stateside, though. Are consumers not happy?
Not so happy, no. So the University of Michigan survey saw a second straight month of decline in September. So it fell 55.4 that's a four-month low from 58.2 in August, worse than expected. Most were expecting no change. So consumers are seeing risks to business conditions, jobs, obviously, we've seen that recently, and inflation – it was particularly weak among lower middle-income consumers. They're seeing risks to their own pockets as well. So views around current personal finances, they fell about 8% this month.
Trade policy, perhaps no surprise, that's a big factor. So they conduct interviews. 60% of consumers provided unprompted comments about tariffs. They're not buying the idea that it won't push up inflation, particularly over the longer term. So inflation expectations, which the Fed will look at during their meeting this week, are over one year, 4.8% that's unchanged, but over the five-year term, up to 3.9% three and a half percent last month. So everything that's happened this year is clearly impacting sentiment, and if you look at the index, it's actually 20% lower than a year ago. Perhaps doesn't help, of course, that the Fed hasn't cut borrowing rates this year. But Mike, there might be some respite at hand as well this week. So markets are pricing in a quarter point rate cut by the Fed this week, and I think there's around about a 12% chance of a 50 basis point cut. So stay tuned.
Numbers please.
The Dow was down . 6% on Friday. 45834. S&P 500, that was down to a smidge to 6584. NASDAQ that was up .4% 22,141. Footsie 100 down .2%, 9283. As you mentioned, UK economy that was flatlining in July. Nikkei up .9% in Japan. ASX 200 up .7%. NZX50, we were flat 13227. Gold up $9, 3643 an ounce. Oil up 32 cents, 6269. And the currencies against the US, 59.5 down .4%, Aussie dollar, 89.6 down .2% as it was against the British pound, Kiwi fetching 43.9. Japanese Yen, 88 flat.
This week lots going on locally with the services sector, print. We've got food inflation that'll be closely watched, dairy auction, of course, second quarter GDP, later in the week, that's a bit lagged. Offshore earnings Haagen Dazs owner General Mills. We've got FedEx, China, US retail sales, US housing, a deluge of central banks, Canada, England, Japan, and, of course, the Fed. So stay tuned.
What a week. Go well Greg Smith, out of Generate Wealth and KiwiSaver specialists