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Monthly Economic Indicators

Executive Summary

  • May’s data releases showed strong demand, confirming the continuation of economic momentum.
  • The labour market continued to improve in the March quarter, with strong jobs growth and an expansion of the labour force, resulting in a steady unemployment rate.
  • The international economy showed some weakness in the March quarter, with slower growth in some of New Zealand’s major trading partners.

Data released in May showed continuing strong demand in the economy, confirming the continuation of economic momentum from the second half of 2013, although business and consumer confidence eased slightly but remain at elevated levels. Data on retail spending continue to support our expectations of a solid lift in private consumption in the March quarter.

There was strong jobs growth and an expansion of the labour force in the March quarter, resulting in a steady unemployment rate and moderate wage growth. The relatively subdued wage inflation is consistent with the moderate underlying inflation across business costs in general but is still expected to accelerate in the year ahead as the labour market gradually tightens. An expanding workforce also contributed to higher labour incomes, providing further support for domestic demand

The ongoing surge in net migrants, along with elevated consumer confidence, is consistent with a further strengthening of domestic demand over the middle of 2014. However, there are several factors which will act to temper demand, including easing dairy prices, monetary tightening and a moderation in house price inflation.

Dairy auction prices continued to ease from historically elevated levels and were reflected in Fonterra’s lower forecast milk payout for the upcoming 2014/15 season. Falling dairy prices are likely to flow through a decline in export values in coming months, although recent increases in the price of other commodities will provide a partial offset.

All told, recent developments support the Treasury’s recently released Budget Economic and Fiscal Update 2014, the economic forecasts for which were finalised on 17 April.

The international economy showed some weakness in the March quarter, with relatively low growth in some of New Zealand’s major trading partners. However, activity was strong in the UK and Japan, and the US picked up as the harsh winter receded. The policy stance of the major central banks remains accommodative and global monetary conditions are likely to be easy for some time.

This month’s special topic is a comparison of the Australian and New Zealand Budgets released in May.
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