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US recovery outpaces New Zealand

Tuesday 22 Jan 2013 8:16 a.m.

The US economy faces challenges in the near future, but is showing more signs of life than our own, say business commentators here in New Zealand.

Recent GDP figures from the US put growth at 3.1 percent, ahead of New Zealand's 2 percent. Stumbling blocks ahead for the US include the debt ceiling and the fiscal cliff.

"I think there are still challenges… with the need to navigate through the debt ceiling, but looking beyond that, there is a degree of optimism," says Greg Smith, from wealth management firm Fat Prophets.

"The housing sector is turning around, and that's making people feel more confident about the outlook, retail sales are turning around, so Americans are getting out there and spending more.

"There are still challenges on the other side – the unemployment rate is still too high and that's one thing that'll be top of Obama's wish-list in terms of getting down over the course of this term."

3 News business editor Michael Wilson points to good profit results from key US companies such as General Electric as another sign the world's largest economy is back on track.

"It's a bit of a bell-weather stock, representing large parts of the US economy," says Mr Wilson.

"Its profit was up 9 percent, which exceeded expectations."

In fact, 70 percent of US companies reported profits beyond admittedly low expectations, says Mr Wilson. Even

Mr Smith says good results from large banks like JP Morgan and Goldman Sachs also serve as a "barometer" of what's happening.

"That's symptomatic of what's happening in the housing sector, so that's feeding through to lending and feeding through to the banks' earnings as well."

Some companies that might appear to be struggling are in fact doing quite well. Plane manufacturer Boeing recently had to ground its Dreamliner fleet, but the impact on its share price was minimal, only down 3 percent.

"The expectation is they will overcome these problems," says Mr Wilson. "It's making big profits at the moment. Its last profit figure, for the nine months of last year to September was US$2.9 billion, up from US$2.6 billion."

Tomorrow tech giants Google and Apple are due to report their latest profits. Apple in particular will come under close scrutiny – its share price has collapsed in recent months, falling from over US$700 in September to exactly US$500 today.

Back at home, Mr Smith says Prime Minister John Key needs to focus on getting our unemployment rate down.

"At 7.3 percent it's still very high, it's in fact a 14-year high last year, so I think we need to see improvements in that," says Mr Smith.

"It's not going to happen overnight. The good news is long-term unemployment's not that high, I think it's around about 10 percent, so the Christchurch rebuild is going to help, but I think we need further impetus, further investment there."

Mr Wilson says Fletcher Building's "astonishing" turnaround is another sign the Christchurch rebuild is kicking into gear.

"If you'd put a dollar into Fletcher Building six months ago, it would now be worth $1.50. They're up 50 percent in the last six months, which is a remarkable turnaround."

The unemployment rate is still key to the country's economic recovery overall, however.

"Of course if we get that unemployment rate coming down it's going to feed through into optimism, feed through into consumer spending, as we've seen in the US," says Mr Smith.

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