Falling unemployment rate boosted March retail sales

The unemployment rate has fallen consistently now for a year and a half, down from a peak of 5.5% in August 2009 to 3.4% in March 2011.

According to HSBC, private sector wages have also expanded consistently since August 2009, with the last staff cost sub-index reading sitting at 55.0 in March.

The risk is that even if employment and wage growh remain in positive territory, accelerating inflation has started to nip at the purchasing power and confidence of local households. This was reflected in the latest consumer confidence index which cooled to 87.2 in 1Q11, down from 95.0 in 4Q11. Though local shoppers have yet to rein back spending as a result of higher prices, if the recent decline in shoppers confidence isn't arrested, they soon might.

Thankfully, according to HSBC, consumers in China seem to be relatively more resilient to inflationary pressures. The strength of the Chinese domestic economy was exemplified not only in this morning's robust government services PMI reading (rising to a solid 62.5 from 60.2 previously), but also the resurgence of Mainland visitor inflows into Hong Kong during March. Seasonally adjusted, Mainland visitor inflows bounced back from February's -7.4% m-o-m (sa) contraction to +5% m-o-m (sa).