More growth but no more jobs

Business confidence is racing up to the highest level for a decade, pointing to strong 4 per cent economic growth this year, a National Bank survey shows.

But for unskilled workers the job market remains a "dead duck", so it may be a jobless recovery this year, with retailers still planning to lay off more staff.

National Bank's business survey shows a net 50 per cent of firms expect better times ahead for the economy, up 11 percentage points on December.

"The economy could well be on track for 4 per cent growth. So 2010 has started with good cheer," National Bank chief economist Cameron Bagrie said.

However, that growth expectation had to be tempered by the fact the world had just gone through the worst financial crisis in 80 years.

Despite the strong growth outlook, the Reserve Bank was still expected to keep official interest rates on hold until June "at the earliest".

It was possible rate rises could be "a lot later" due to the continued after effects of the global financial crisis.

"We are seeing a recovery on track, but there is still debate about the magnitude or the speed of recovery. The jury is still out on that," Mr Bagrie said.

That was especially so after recent bad news such as rising unemployment levels and the housing market hitting a wall.

The closely watched "own activity" expectations index shows a net 42 per cent of firms expect an improvement in their own business in the coming year, up from 37 per cent in December. Confidence was strongest for manufacturers, construction firms and service areas.

There was also a rise in the net number of firms expecting profits to improve. A net 9 per cent expect to be hiring in the coming year, the survey shows, which suggested unemployment was close to the peak.

But employers had cut back heavily on hours worked for each staff member, down to almost record lows. "The first leg of the recovery will be driven by [rising] hours worked, rather than employment," Mr Bagrie said.

The prospect was for a "jobless recovery" in 2010, although there was growing demand for skilled workers.

"For the unskilled – it is just a dead duck, there is no demand and a lot of people chasing a limited number of jobs," he said.

Retailers were much gloomier in the latest survey, with confidence down a net 14 per cent. A net 7 per cent of retailers expect to cut staff and 6 per cent plan to invest less in their business – a reversal from the positive readings at the end of 2009.

Overall investment plans cooled a little, although remained net positive, which suggested firms were in a "holding pattern" on investment.

A net 23 per cent of firms were expecting improved profits, up from 16 per cent at the end of last year, which was one of the green shoots of a recovery. "Firms have got to be making a buck before they spend a buck," Mr Bagrie said.

Export intentions were strong, with a net 31 per cent of firms expecting better volumes in the year ahead, reflecting a stronger Australian economy.

Pricing intentions nudged higher, with a net 26 per cent of firms planning to push up prices in the coming year. But that was "neither here nor there" for the inflation outlook, although pricing intentions had been rising for the past five months.

"And ultimately it is the direction that counts," Mr Bagrie said.

- © Fairfax NZ News