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Monthly Economic Indicators

Executive Summary

  • Retail sales rose in September in anticipation of higher GST, but likely fell in October
  • Credit growth and housing market stall
  • Agriculture and education drive employment recovery, unemployment slower to fall
  • Business confidence rises, trade surplus widens on record high commodity prices but risks to export growth intensify

Domestic data released in October showed that consumer spending at retail outlets rose in anticipation of higher Goods and Services Tax (GST) from 1 October and that subsequently it likely fell back.  Household credit growth was flat in October and house prices edged lower, suggesting that household spending remains conservative and that the economy will need to rely on other sources of expenditure to drive growth in the period ahead. 

The labour market grew strongly in the quarter, but the quarterly rise appeared to overstate the strength of underlying demand.  Much of the demand for labour over the past year has come from the primary industries and from education.  Employment in manufacturing industries looks to be stabilising, but trading conditions in the industry remain challenging. The unemployment rate recorded a large fall in the quarter, down 0.5 percentage points but is little changed from a year ago, reflecting rising participation among older age groups and high unemployment rates for younger age groups, particularly Maori. The outlook is for the labour market recovery to continue at a moderate pace over 2011.  

Businesses remain reluctant to increase their exposure to debt, although there are encouraging signs of a lift in credit growth and rising business confidence points to a more vibrant economy over 2011. 

Commodity exports are benefiting from rapid price growth and have helped push the merchandise trade surplus to its highest level in sixteen years.  Maintaining that surplus will be challenging as there is limited capacity to increase agricultural volumes in the short-term and imports are likely to increase as consumption and investment strengthen over the year ahead.  In addition, a number of risks to export volumes emerged over the month including drought and the kiwifruit vine disease, psa.  Concerns about the sustainability of commodity prices also intensified over the month as China acted to curb rising inflation and the stability of the Euro area came under question.  We review recent international developments and their implications for New Zealand in our Special Topic.
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