Labour Market Update - March 2012
Key points:
- The economy grew by 0.3% in the December 2011 quarter, following a 0.7% increase last quarter
- The labour market is slowly recovering, despite weakness in Canterbury
- Wage growth continued to gradually recover over 2011
- The economic and labour market recovery is forecast to continue over the coming year
New Zealand economy grew by 0.3% in the December quarter…
Economic activity increased by 0.3% in the December 2011 quarter (see Figure 1), following a revised 0.7% increase in September 2011. The growth was below the market expectations of 0.6%. Economic activity grew by 1.4% for the year ended December 2011, up from 1.2% for the year ended December 2010.
Fig 1: Quarterly economic growth
Source: GDP, Statistics NZ
The finance, insurance, and business services industry made the largest contribution to economic growth over the quarter. This is the fifth consecutive quarterly increase in this industry (up by 1.3% in the December 2011 quarter, following a 0.6% increase in September 2011). Retail, accommodation, and restaurants activity continued rising (up by 2.2%) after a sharp 5-year high increase (2.6%) last quarter. After three consecutive quarters of declining output, construction activity grew by 1.5% in the December 2011 quarter, due to increases in residential and non-residential building activity.
However, manufacturing activity declined by 2.5%, following a 2.2% increase last quarter. The decline was driven by a decrease in food, beverage, and tobacco manufacturing. Electricity, gas, and water activity also contracted (down by 2.4%).
…with households spending more
Household spending grew by 0.8% over the quarter, following a strong increase in the September quarter (1.6%). There was a 4.0% increase in spending on durable goods (e.g., furniture and major appliances). Consumption on non-durable goods increased by 0.3%, following a 3.2% increase last quarter.
Gradual recovery in the labour market continues…
The Household Labour Force Survey (HLFS) results showed that the labour market continued its gradual recovery in the December 2011 quarter, with 3,000 (0.1%) more people employed (see Figure 2). Employment has now risen by 67,000 jobs (3.1%) since its low-point in the September 2009 quarter, shortly after the end of the recession. The number of people employed has now recovered to its pre-recession level, although the employment rate is lower because of increases in the working-age population.
The unemployment rate fell from 6.6% to 6.3% (see Figure 3). This fall was larger than expected and was mostly due to a decrease in the labour force participation rate, from 68.4% to 68.2%, which meant that the size of the labour force decreased slightly. The labour force participation rate is still slightly above where it was a year ago (68.0%). New Zealand’s unemployment rate is well under the OECD average of 8.2%.
Fig 2: Employment Growth
Source: HLFS, Statistics New Zealand
Fig 3: Participation and unemployment rate
Source: HLFS, Statistics New Zealand
The underlying trend continues to show a gradually improving labour market. Employment is 1.6% higher than a year ago, labour force participation is slightly up, and the employment rate has risen from 63.5% to 63.9%. The unemployment rate is well below its peak of 6.9%. The small increases in wage growth signal a strengthening demand for labour over the past year.
…as strong employment growth in Auckland compensates for fall in Canterbury
The Auckland region has accounted for most of the employment growth over the past year, with an increase of 50,700 people (7.6%). There was also strong employment growth in the Nelson-Tasman-West Coast regions (up 12.3%) and the Otago region (up 7.5%).
The earthquakes beginning in September 2010 and continued aftershocks have altered the economy and the labour market in the Canterbury region (see Table 1).
| Annual unadjusted changes | Canterbury | National excluding Canterbury |
|---|---|---|
| Employment | -8.3% | +3.3% |
| Employment rate (percentage point) | -1.9 | +0.7 |
| Labour force participation rate (percentage point) | -2.7 | +0.7 |
| Not in the labour force | +3.3% | -0.1% |
Source: HLFS, Statistics New Zealand
Employment in Canterbury fell by 28,200 people (8.3%) during the year, compared with a 3.3% increase across the rest of the country. The retail and hospitality sectors have been hit particularly hard by the earthquakes, and this has affected female workers more than male workers. Employment in the Canterbury retail trade and accommodation industry fell by 11,700 people (20.6%) during the year.
Canterbury unemployment is now lower than it was a year ago, down by 5,100 people (or 23.7%), and the unemployment rate has fallen from 6.0% to 5.0% over the year. Only three other regions have a lower unemployment rate than Canterbury.
Canterbury’s fall in employment has not flowed through to a long-lasting rise in local unemployment. Instead, it appears that people have either left Canterbury or dropped out of the labour force. The Canterbury working-age population fell by 28,400 people (5.6%) over the year. Labour force participation also fell in Canterbury, from 70.7% to 68.0%.
…and wage growth gradually recovers
The December 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 December 2011 quarter, contributing to annual wage growth of 2.0%. This level of annual wage growth is unchanged from the year to September 2011, but is up from 1.7% a year ago.
Fig 4: Wage growth measures
Source: LCI, QES, Statistics NZ.
The unadjusted LCI (which includes pay increases due to such factors as changes in performance, experience and increased qualifications) was 3.2% for the year to December 2011, down slightly from 3.3% for the year to September 2011. The adjusted LCI is the best measure of the cost of living component of wage increases. However, the unadjusted LCI is a better measure of the level of pay increases that people actually received. Annual wage growth in the QES[1] was 2.8% for the year to December 2011, down from 3.2% for the year to September 2011 but up from 1.9% a year ago.
The latest results confirm that wage growth is gradually recovering, albeit from a low level. However, as unemployment remains elevated and inflation pressures remain contained, wage growth is likely to be modest in the short-term. Wage growth is forecast to pick up over the next two years, particularly once the Canterbury rebuild gathers momentum.
The economy and labour market recovery are forecast to continue
The global risks are slowly diminishing while the domestic economy has been recovering at a modest pace. High export commodity prices will continue to provide some temporary support to the export sector and the Canterbury rebuild is expected to boost the domestic economy significantly over time. The average prediction in NZIER’s Consensus Forecasts is for the economy to expand by 1.8% in 2012 March year to 3.2% by the 2014 March year.
Recent data indicates employment intentions remain positive. The Department of Labour’s Jobs Online revealed the number of online job advertisements has increased over the past two months.
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 (see Figure 5).
The unemployment rate is forecast to trend down slowly, to below 6.0% by March 2013 and 5.4% by March 2014 (see Figure 6).
Fig 5: Employment growth
Source: HLFS, Statistics New Zealand; Department of Labour forecasts.
Fig 6: Unemployment rate
Source: HLFS, Statistics New Zealand; Department of Labour forecasts.
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Footnote
[1] The QES can be volatile given it is affected by compositional changes.