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Monthly Economic Indicators

Executive Summary

  • Further labour market weakness revealed as the unemployment rate rose to 4.2% in September 2008
  • Firms have faced significant cost pressures, which will ease in the months ahead
  • Pressure on consumers' budgets contribute to falling retail sales volumes
  • Global financial markets remained volatile in November

Continued weakness in the labour market was revealed in November, as the unemployment rate rose to 4.2% in the September quarter, consistent with the contraction in the New Zealand economy in the first half of 2008. With continued weakness expected in the New Zealand economy, a similar rise in the unemployment rate is expected in the December quarter.

A reduction in the number of staff hours in the September quarter provides weight to our view that economic activity fell slightly on an expenditure basis in the September quarter.

Firms have faced rapidly increasing labour and non-labour costs and have found it difficult to pass on these costs in an environment of lower demand. Higher costs reflect past resource constraints which are expected to ease in the near term. World commodity prices, particularly crude oil prices, have already tumbled from recent peaks as world demand has slowed. Falling commodity prices will eventually flow through to lower inflation. Lower prices for export commodities will be cushioned to a certain extent by the falling exchange rate.

Retail sales volumes fell further in the September quarter. High fuel and food prices have placed considerable pressure on consumers' budgets. Consumers have also responded by reducing discretionary spending and delaying the purchase of durable goods. Consumers are already experiencing relief from high costs of living from falling fuel and food prices, as well as monetary and fiscal policy responses. These factors will support private consumption in the December quarter.

Global financial markets remained highly volatile in November and the availability of credit remains constrained. The effects on the real economy became more apparent in November with some major economies, including the Euro zone, Japan, the United States and the United Kingdom, contracting in the third quarter. Central banks and governments around the world have responded to the deepening of the downturn by further cutting policy interest rates and announcing fiscal stimulus packages. Domestically, the Reserve Bank cut the official cash rate by 150 basis points, in response to the ongoing financial market turmoil.

This month's Special Topic reviews the major sources of job growth over the past decade and discusses prospects for employment over the year ahead.

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