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Monthly Economic Indicators

Executive Summary

  • Labour market weakens further in September quarter
  • Other economic indicators point to ongoing economic recovery
  • World economy strengthens but global financial markets cautious about recovery

The labour market weakened further in September as firms responded to weaker demand, leading to an unemployment rate of 6.5%. With slack in the labour market, it may take time for the number of people employed to increase even as economic growth picks up. The deterioration in the labour market has had a material effect on the government's tax revenue, and this month's Special Topic discusses trends in tax revenue for the year ended June 2009.

Facing limited wage and salary growth, lower employment prospects and considerable levels of debt, households have responded cautiously to signs of a recovery, as shown by the subdued rise in retail spending in the September quarter. However, with retail sales picking up, private consumption is likely to contribute to an increase in GDP in the September and December quarters.

Business confidence remains upbeat, with firms' expectations of their own conditions reaching their highest level since mid 2002 and indicating a strong rebound in annual GDP growth. However, underlying measures of business sentiment such as employment and investment intentions, although consistent with a recovery, do not support such a marked rise in annual GDP growth.

Strong positive net migration continued in October, as fewer New Zealanders emigrated given uncertainties around job prospects abroad, pointing to annual net migration reaching 22,500 by year end. Strong net migration is supporting increased interest in the housing market, and combined with a limited supply of listed property is leading to a rise in prices. The recovery in the housing market is also providing fertile ground for a rebound in housing construction, and as a result building consents have begun to recover from extremely low levels. Consequently, residential investment is also expected to contribute positively to December quarter GDP growth.

However, there are risks around the sustainability of the recovery. With employment and salary and wage growth likely to remain soft for a while, consumption is likely to remain subdued. Moreover, the value of capital goods imports is well down on a year earlier, pointing to weak investment activity in the near term.

Prices for New Zealand's main export commodities, supported by a continued recovery in world economic growth, built on previous gains. In particular, dairy prices on Fonterra's online auction have increased a cumulative 95% since July and provide evidence of firming demand. Several major economies recorded positive GDP growth in the September quarter and forward-looking indicators support a strengthening outlook for the world economy. However, developments associated with Dubai World highlighted global financial markets' nervousness around the sustainability of the global recovery.

Our latest economic and fiscal forecasts will be released in the Half-Year Update on 15 December.

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