- The economy appears to have slowed in the second half of the year, following on from a strong first half.
- September quarter retail sales and labour market data surprised on the downside, although the underlying picture is not quite as weak as the headline results suggest.
- The slowdown should be temporary, with the December quarter likely to rebound slightly and indicators pointing to a further pickup in 2013.
- There were positive global developments, but the economic outlook remains weak.
The economy appears to have experienced a slowdown in the September quarter as activity indicators suggest that growth was weaker than in the first half of the year. Retail sales volumes unexpectedly fell in the quarter; indicators of manufacturing and service sector activity weakened; and agricultural production is expected to drop back following excellent pastoral conditions earlier in the year. Labour market data for the quarter were also weak, with a rise in the unemployment rate to 7.3% from 6.8%, accompanied by a fall in employment.
However, while there was weakness in the September quarter, we consider the economy was not quite as soft as the headline data suggest. The fall in retail sales may have been driven by fewer people being in the country than in a usual September quarter, as net tourism arrivals in the quarter were much lower than average. The rise in the unemployment rate and fall in employment were not matched in other labour market indicators and there may be other factors at play which explain some of the weak labour market headlines.
The fallback in growth in the September quarter appears to be temporary as activity indicators have bounced back in October and November. Other conditions point to a further pickup in growth in 2013, supported by the ramp-up in the Canterbury rebuild. Part of this story involves households which are currently cautious in their spending behaviour. However, factors supporting household disposable income and wealth, including an improving housing market, rising commodity prices and low interest rates, should lead to increasing private consumption growth. This further underlines that the weakness in the September quarter is temporary.
International developments were fairly positive as Greece had its next tranche of funding approved by the Troika and there were positive signs in the US fiscal negotiations. Despite the positive Greek developments, the euro area remains weak with poor growth prospects. In contrast, data out of the US and China continue to show slight improvement.
This month's special topic looks at the annual National Accounts release, particularly what the data tell us about saving and investment.