Labour Market Update - December 2011
Published: 22 December 2011
Key points:
- The economy grew by 0.8% in the September 2011 quarter, following a 0.1% increase last quarter
- The labour market is slowly recovering, despite weakness in Canterbury
- Net annual permanent and long-term migration has continued to ease
- The economic and labour market recovery is expected to continue over the coming year
Economic growth has improved in the September quarter…
Economic activity increased by 0.8% in the September 2011 quarter (see Figure 1), following a 0.1% increase in June 2011. The growth was in line with market expectations. Economic activity grew by 1.3% for the year ended September 2011. However, future growth may be constrained by the weak and volatile global economy.
Fig 1: Quarterly economic growth
Source: GDP, Statistics NZ
The quarterly growth was led by an increase in retail, accommodation, and restaurants (up 2.5%, the largest quarterly increase in 5 years), in part due to the impact of the Rugby World Cup. Manufacturing increased by 2.3% over the quarter, driven by an increase in food, beverage, and tobacco manufacturing.
However, construction activity declined by 2.2%, the third consecutive quarter of decline. Agriculture activity contracted by 1.1%, following a 3.8% expansion last quarter. The decline was due to falls in dairy and livestock production.
…with households spending more
Household spending grew by 1.5% over the quarter, the largest increase since March 2007. There was a 3.3% rise in spending on non-durable goods, mainly driven by supermarket spending. Consumption on durable goods increased by 0.8%, following a 1.0% increase last quarter. Spending on recreational goods and new vehicles were the main drivers of the increase.
The labour market is slowly recovering…
The latest Household Labour Force Survey (HLFS) results showed that the labour market continued its gradual recovery in the September 2011 quarter, with 5,000 (0.2%) more people employed (see Figure 2) and more people participating in the labour market (see Figure 3).
Fig 2: Employment Growth
Source: HLFS, Statistics New Zealand
Fig 3: Participation and unemployment rate
Source: HLFS, Statistics New Zealand
Employment kept pace with population growth, but increasing labour force participation led to an increase in the unemployment level (157,000 people) and the unemployment rate (6.6%). Labour force participation is holding at historically high levels (68.4%).
These quarterly results were weaker than expected but the underlying trend continues to show a gradually improving labour market. Employment is 1.1% higher than a year ago, and labour force participation has increased. The unemployment rate remains below its December 2009 quarter peak.
…despite current weakness in Canterbury…
Employment in Canterbury fell by 26,800 people (8.0%) during the year, compared with a 2.8% increase across the rest of the country. A significant proportion of this employment loss was in two industries: retail trade and hospitality. Employment in these industries fell by 12,600 people (22.4%) during the year. Females tend to be over-represented in the retail and hospitality industries, which has led to a more significant impact on female labour market participation rates.
The fall in employment did not flow through to a large rise in unemployment. Canterbury unemployment increased slightly in the September year, by 900 people (or 5.3%) and the unemployment rate increased to 5.5%. People have either left Canterbury or dropped out of the labour force. The Canterbury working-age population fell by 13,500 people (2.7%) over the year.
According to the Department’s Canterbury Employers Survey, retaining and attracting staff has become more challenging following the earthquakes, with one in four workplaces saying retaining staff has become harder. Half of the firms that recruited reported difficulties in hiring new employees. Construction workplaces were finding staff retention and recruitment particularly challenging. Looking ahead, most workplaces expect to keep staff numbers the same or increase them over the next 12 months, and nearly half of workplaces expect the outlook for greater Christchurch to improve in the next 12 months.
…while net annual permanent and long-term (PLT) migration continued easing…
Net annual PLT migration has been easing since early 2010, with large numbers of people heading to Australia resulting in a net loss (of 600 people) for the year to November 2011. This was the largest net outflow in 10 years. The February earthquake and the relatively attractive Australian labour market were the main factors for the ease in net PLT migration.
Although PLT arrivals rose by 2.1% over the year to November 2011, PLT departures increased significantly (up 19.4%). A total of 58,600 New Zealanders left the country, up from 44,900 a year ago (up 30.5%). Australia remains the most common destination for departing New Zealanders with 44,900 departing for Australia over the year to November 2011, up from 31,300 a year ago (up 43.8%), with an overall record high net loss of 35,800.
The Department forecasts departures to Australia to increase over the coming months due to the lagged effects of the recent strength in the Australian labour market. However, the Australian labour market is showing signs of slowing, and as employment prospects in New Zealand improve, departures to Australia are forecast to ease in the latter part of 2012. Arrivals from the rest of the world (excluding Australia) are also forecast to increase over the next year, but at a slower rate than the increase in departures to Australia, resulting in a continued net migration outflow over the short term.
…and wage growth gradually recovered
The September 2011 quarter data confirms that wage growth is gradually recovering (see Figure 4). The adjusted LCI (which measures changes in pay rates for a fixed set of jobs and excludes performance-related pay increases) rose by 0.6% over the September 2011 quarter, lifting annual wage growth to 2.0%. The annual wage growth is up from a 1.6% increase a year ago.
The unadjusted Labour Cost Index (LCI, which includes pay increases due to such factors as changes in performance, experience, and increased qualifications) rose 3.3% for the year to September 2011. Annual wage growth in the Quarterly Employment Survey (QES), which also includes changes in the composition of the workforce, rose 3.2% for the year to September 2011.
Fig 4: Wage growth measures
Source: LCI, QES, Statistics NZ.
The economic recovery is expected to continue over the coming year…
The economic recovery is expected to continue, but at a slower pace than previously expected. The elevated export commodity prices and the remaining spill-over effects of the Rugby World Cup will continue to provide some temporary stimulus for consumption and the export sector. However, slower trading partner growth and on-going global economic uncertainty is likely to dampen export growth.
The Canterbury rebuild will provide a significant boost to output and employment over the next few years. Treasury’s latest damage estimates are $20 billion (up from $15 billion). This will provide a powerful offset to the effects of the weaker global economy and, because much of the rebuild cost is met from insurance claims, there is a high degree of certainty that this activity will occur. However, the precise timing of the rebuilding work is more uncertain. Nevertheless, the average prediction in NZIER’s Consensus Forecasts is for the economy to expand by 2.2% in the year to March 2012, and then accelerate to 3.0% in 2013.
…while the labour market recovery continues
Recent data indicates that the labour market is expected to grow modestly in the short-term, consistent with the economic recovery. The Department’s Lead Employment Indicator, released in early November, suggested employment would increase by 0.3% in the December 2011 quarter and by between 0.2% and 0.4% in each of the following two quarters. The Department of Labour’s Jobs Online revealed an easing trend in the number of online skilled job advertisements. A number of business surveys and recruitment agency reports indicated a slowdown in employment intentions over the next 12 months. The Department forecasts annual employment growth of 1.3% in the March 2012 year and 1.6% in 2013.