Labour Market Update - June 2010
Published: June 2010
The economic recovery continues...
Economic activity increased by 0.6% over the March 2010 quarter, confirming that the recovery remains on track (see Figure 1). This was the fourth consecutive quarter of economic growth, following a 15-month recession, and lifted annual growth to 1.9%. Nevertheless, economic activity still remains 1.6% below its December 2007 peak. The economic recovery has so far been relatively weak compared to previous cycles.
...led by the export sector...
The recovery is being led by exports, with the primary and goods-producing sectors driving growth. The volume of goods exported increased by 3.4% over the March 2010 quarter due to strong global demand (particularly from Asia), robust growth in Australia, and a favourable exchange rate with Australia. Strong growth was recorded in export industries such as manufacturing, agriculture, oil & gas extraction, and forestry & logging. Wholesale trade and transport & storage activity also rose strongly, reflecting the increase in international trade.
Many service industries on the other hand remain subdued. Economic activity in retail and hospitality fell strongly over the March 2010 quarter while communication services were also weak. The recovery in consumer spending and industries such as retail has been weak compared to previous upturns and is slightly out of line with high consumer confidence. Many households appear to be choosing to repay debt or increase savings rather than beginning to spend again.
Fig 1: Quarterly economic growth
Source: Statistics New Zealand
Fig 2: Unemployment Rate
Source: Statistics New Zealand
...and the economic outlook is positive...
Economic growth is expected to gather momentum over the next year in line with high levels of business and consumer confidence and a recovering labour market. While weakness remains in some areas, such as consumer spending, economic growth is expected to pick up over the remainder of 2010 as a result of strong growth in our trading partners and record high commodity prices. Nevertheless, uncertainty remains and there continue to be risks around the outlook, particularly globally (eg European sovereign debt problems have raised concerns around the sustainability and fragility of the global recovery). This uncertainty was reflected in the June National Bank Business Outlook, which reported an easing in business confidence, albeit from very high levels.
...with the labour market set to continue improving...
The labour market reached a turning point in late 2009/early 2010 as the economic recovery gained momentum. The economy grew by a total of 1.5% over the December 2009 and March 2010 quarters. This helped employment rise by 1.0% in the March 2010 quarter and the unemployment rate fall from 7.1% to 6.0%, the largest decline in the history of the Household Labour Force Survey (see Figure 2).
...as employment is increasing...
Employment appears to be firmly on an upward trend, in line with rising employment intentions and job ads. Employment has risen by 23,000 since it reached its trough in the September 2009 quarter, and the June National Bank Business Outlook shows a net 13.4% of firms expect to increase staffing levels over the next 12 months (see Figure 3). Employment intentions are well above their long-term average of 6.1%. The Department’s Jobs Online report also indicates further rises in employment, with the number of online job ads increasing by 7.5% in the three months to May 2010.
Employment is expected to continue growing over coming quarters, but at a lower rate than the 1.0% increase recorded in the March 2010 quarter. The Department of Labour’s Leading Indicator of Employment is signalling growth of between 0.1% and 0.5% for each of the June and September 2010 quarters and a slightly larger rise in the December 2010 quarter.
...and employee confidence is returning...
Employee confidence rose to its highest level since the recession ended in the June 2010 quarter, according to the Westpac-McDermott Miller Employment Confidence Index, which increased 4.5 points to 108.2. Encouragingly, the rise was driven by an improvement in both current and future expectations. A net 19.3% of respondents said they expect there to be plenty of job opportunities in June 2011. Employees were most confident in the Taranaki/Manawatu region, perhaps as a result of strength in agriculture, particularly dairy, which is a key driver of growth in the region.
Fig 3: Employment intentions
Source: Statistics New Zealand
Fig 4: Departures of NZers to Australia
Source: Statistics New Zealand
...although net migration has turned...
After rising strongly over 2009, net migration turned at the start of 2010 and has eased from a six-year high of 22,600 for the year to January 2010 to 18,000 for the year to May 2010. This easing has been driven by fewer arrivals and a rise in departures of New Zealanders, particularly to Australia (see Figure 4). It is expected that net migration will remain positive but continue to ease over the next year as the global economy continues to recover and the Australian unemployment rate remains low (5.2% in May 2010).
...and the unemployment rate may rise in June 2010 quarter
Despite the improving labour market, the recovery is expected to be fragile and uncertain. In addition, labour market data has been volatile of late. We believe that the unemployment rate reached its peak in the December 2009 quarter but it may rise slightly from the 6.0% reported in the March 2010 quarter. A rise in the unemployment rate is even more likely if more people are encouraged to seek work due to improving job prospects.