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BNZ Weekly and Offshore Overviews May 8 2008

Welcome to the May 8 2008 editions of the BNZ Weekly and Offshore Overviews.

This has been a very interesting week with important implications for the economy, interest rates and the exchange rate. First, overseas credit conditions have been easing slightly in recent weeks and this has produced some mild downward pressure on wholesale interest rates. That pressure received an extra boost yesterday when the Reserve Bank took moves as insurance against any further credit crisis overseas while expressing high concern about the state of the NZ economy.

Then this morning we learnt that the NZ labour market is in a far weaker state than other indicators had been suggesting. Job numbers fell 1.3% in the quarter and were down from a year earlier for the first time since the last recession in 1998. The weakness shown in the report means we now expect the first easing in monetary policy to occur on September 11.

This means good news eventually for borrowers, but we have to remember such good news is tempered by what is causing it ? badly crimped household budgets hit by rising petrol and food prices, plus high interest rates. There is good news also implied for exporters however and the NZD this evening is trading just over US 77 cents and almost below 82 cents against the Aussie dollar.

In the Weekly Overview we take a look at an interesting relationship between changes in the number of Kiwis travelling overseas and sales of furniture. We also do a case study of what someone setting up a book shop on the North Shore should allow for in terms of reduced sales over the next couple of years.

We also refresh people?s memories about the net internal migration outflow from Auckland as well as discussing the monthly Barfoot and Thompson house sales numbers for Auckland in April. They were bad but not quite as bad as they could have been with interesting price action. We also note our monthly confidence survey which for the second month in a row has revealed a small decline in pessimism ? and we think the word ?small? needs to be emphasised here.

All up, it has been a watershed week in some regards as we head into a Winter which is going to prove especially challenging for operators exposed to the housing sector and retailing.


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