Labour Market Update - June 2012
Key points:
- The economy grew by 1.1% in the March 2012 quarter as good growing conditions bolstered both milk production and dairy product manufacturing.
- The labour market is slowly recovering with moderate employment and wage growth. There are also signs of improvement in Canterbury.
- The economic and labour market recovery is forecast to continue over the coming year.
Economy grows by 1.1% in March 2012 quarter…
Economic activity increased by 1.1% in the March 2012 quarter as good growing conditions bolstered both milk production and dairy product manufacturing. This follows a 0.4% increase in the December 2011 quarter. Growth in the latest quarter was well above market expectations of 0.3%. Economic activity grew by 1.7% for the year ended March 2012.
By industry, the main contributors to the increase in economic this quarter were:
- agriculture (up 2.3%), mainly driven by an increase in milk production
- manufacturing (up 1.8%), due to increases in primary food manufacturing and metal product manufacturing, and
- business services (up 2.0%), which include professional, scientific, technical, administrative, and support services.
Labour market activity tends to lag GDP. Consequently, it will be some time before the strength in the latest quarter’s GDP results flows through to more substantial improvements in the labour market.
…with households saving more
Household spending grew by 0.1% over the quarter. There was a 0.9% increase in spending on durable goods (such as furniture and major appliances). Consumption on non-durable goods decreased by 0.5%.
This reflects households continuing to pay off debt or deleverage. Commentators expect this to continue for another three years. This will likely provide further challenges for sectors such as retailing.
Gradual labour market recovery continues…
Employment rose by 0.4% (9,000 people) in the March 2012 quarter, up 0.9% for the year (see Figure 1). The employment rate increased by 0.3 percentage points to 64.2%, after remaining steady for three quarters. While only a modest rise, this means that employment growth outstripped the increase in the working-age population in the latest quarter.
The unemployment rate rose from 6.4% to 6.7%. This rise was much larger than expected owing to a sharp rise in the labour force participation rate (see Figure 2). Nevertheless, New Zealand’s unemployment rate is well under the OECD average of 8.2%.
Jobs Online showed that vacancies advertised online rose by 12.8% in the year to May 2012, indicating gradually improving employment prospects in the economy. The Seek Employment Index[1] also rose in the year, indicating that there are more vacancies per job seeker. This is consistent with the anticipated continuing recovery in employment over the coming year.
Fig 1: Employment growth
Source: HLFS, Statistics New Zealand
Fig 2: Participation and unemployment rate
Source: HLFS, Statistics New Zealand
…with signs of improvement in Canterbury
There are some signs of improvement in the Canterbury labour market, with the unemployment rate falling over the past year, and the employment rate rising. The number of people unemployed has fallen, however the number of people employed has also fallen over the year.
The retail trade, accommodation, and food services industry had the largest decrease in employment for the year. The largest increase in employment for the region was in the construction industry.
The long-term prospects for the region are promising, with the rebuild stimulating the construction sector and wider economy.
…and wage growth picking up
The March 2012 quarter data shows that wage growth continues to gradually recover. The Labour Cost Index (which measures wage inflation) rose by 0.5% over the March 2012 quarter, contributing to annual wage growth of 2.0% (see Figure 3). This level of annual wage growth is unchanged from the years to December 2011 and September 2011, but is up from 1.8% a year ago.
Fig 3: Wage growth
Source: LCI, QES, Statistics NZ.
Wages typically lag changes in economic and labour market conditions by 1-2 years due to the infrequent nature of wage negotiations. With the modest economic and labour market recovery, and contained inflation pressures, wage growth is likely to be modest in the short-term.
The recovery is forecast to continue
The underlying trend continues to show a steadily improving domestic labour market. However, the global economic environment remains fragile. Falling commodity prices and slowing exports provide challenges for the domestic economy in the year ahead.
However, the Canterbury rebuild is expected to provide a significant boost the economy over time. The average prediction in NZIER’s Consensus Forecasts is for the economy to expand by 2.1% in 2013 March year to 3.1% by the 2014 March year.
The Department forecasts employment to grow by 1.8% (or 39,600 jobs) in the 2013 March year and by 2.4% (54,100 jobs) in the 2014 March year. The unemployment rate is forecast to trend down slowly, to 6.0% by March 2013 and 5.6% by March 2014.
Footnote
