Business mood turns upbeat – but it's a jobless recovery

Shamubeel Eaqub

A surge in optimism back to pre-economic crisis levels is reflected in the latest comprehensive business mood survey.

The New Zealand Institute of Economic Research's quarterly survey shows a trading activity for the December quarter rose to a +8% on the survey's index, the highest level since mid-2007.

The rise is predominantly in Auckland and, to a lesser degree in Canterbury, but it is across all industries, says the institute's principal economist, Shamubeel Eaqub.

The building sector shows the strongest rebound, reflecting pent-up demand in the country's two largest cities, albeit for different reasons.

For all the political heat around a manufacturing "crisis" in the latter part of 2012, that sector picked up strongly over the quarter.

This has been largely from domestic sales and is in part due to the surge in building.

"There's also been some volatility around dairy and meat processing," Mr Eaqub says.

"The improvement certainly has a construction component but I would not overplay it. The building pick-up is dominated by Canterbury, but the manufacturing pick-up is from all parts of New Zealand."

Retail also showed a marked improvement, even allowing for seasonal factors.

The recovery is not flowing through into jobs, however. Hiring intentions are not high and the labour market overall is "subdued", he says.

"The real disappointment, and the only real disappointment, in fact, is the labour market. The really disappointing aspect was Canterbury, where the surge in hiring for the rebuild appears to have petered out."

The result points to GDP of about 2% for 2013, "give or take a half a percent".

There is little to trouble the Reserve Bank in today's survey, he says.

The central bank does not need to raise the official cash rate from its present level of 2.5% until the first quarter of 2014.

Today's figures are "consistent with annual inflation of around 1%" and the Reserve Bank is not likely to raise rates until inflation starts to increase.

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