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The economy
Economic analysis for AucklandJuly 2008 | March 2008 | December 2007 December 2007This is a summary of Auckland city's economic facts looking at the last quarter of 2007. Overall the economic picture mirrors national trends with a slowing housing market, strong labour market and growing uncertainty over the impact of higher credit costs. While the economic forces dominating the national, and to some extent the international scene, are also affecting Auckland, the city's economic tensions are more pronounced than the national picture:
Economic conditions December 2007
Labour market and wagesUnemployment in Auckland city was 4.2 per cent in the December quarter, similar in to the 4.1 per cent recorded in the previous December quarter. The city figure did not match the record low nationally of 3.4 per cent. Employment in the city rose by 25,600 (12 per cent) compared to December 2006, with an increase in the number of full time and part time workers. The participation rate [1] was also at its highest for Auckland city (69.8 per cent) since 1990. The combined low unemployment and high participation rates indicate a very constrained labour market. This was reflected in The December Quarterly Survey of Business Opinion conducted for Auckland city, showing a net 44 per cent of those surveyed finding it harder to find skilled labour and a net 31 per cent finding it harder to source unskilled labour than in the previous three months. These figures express the strongest difficulty in finding labour since June 2005. Strains on the labour market have translated into consistent wage growth over the last few years, adding to the inflationary pressures in the economy. The average total weekly earnings increased by 4 per cent to $994 in December 2007 compared to a year ago, compared with a 3.5 per cent increase nationally. The 4 per cent growth in wages in Auckland city is higher than the annual average growth in wages over the last 10 years (3.2 per cent) - but is set against a context of increases in the cost of living, such as housing, food, and energy. Further, constraints on the labour market are unlikely to ease in the short term and there is no predicted boost to labour supply from higher levels of migration. Auckland city continues to be a destination for new migrants, attracting around 20 per cent of new long-term arrivals to New Zealand. In the year to December, net migration in Auckland city was 6550, a decline of 13.3 per cent over the previous year. Although both arrivals and departures increased over the previous year, departures increased by more. This level of net migration is around the 10 year average for the city with the annual net migration for Auckland city remaining around 7000 annually since 2004. Retail spendingRetail spending (which increased 5.2 per cent over the year to Dec 2007) slowed marginally in the last quarter of 2007 for Auckland city. Core retail spending (excluding automotive components) slowed from 6.6 per cent in the June year to 5.3 per cent in the December year. While there were jumps in the value of retail sales for food and automotive services in the December quarter, households were not consuming more of these goods, just paying more for them. Increased interest rates, petrol prices and a slowing housing market will curb household spending as discretionary spending is constrained. HousingStrong house price growth has largely driven high levels of inflation in New Zealand. The housing market boom is now clearly over. Successive interest rate increases over 2007 caught up with fixed term mortgage-holders who are now refinancing at higher rates. In December 2006 compared with December 2007, house prices increased by 6.3 per cent, a long way down from double-digit growth experienced in the first half of the year. House prices have generally moved sideways over 2007. In Auckland city, the average median sale price of a house in December ($510,000) was the same in April 2007. House price growth in the city is still above that of the national average (4.5 per cent) median house price of $345,000, over the same period.
Further evidence in the housing decline is in the number of sales, and the average time taken to sell a house. The number of sales in Auckland city in December 2007 was down 28 per cent (32 per cent nationally) on a year earlier to 1454. (the lowest number of house sales in December since 2000). The time taken to sell a house in December increased from 28 days to 33 compared with last year (36 nationally).
Residential and non-residential building consentsClosely linked to the housing market are residential building consents. There were 854 residential building consents issued in the December quarter, 19.8 per cent fewer than December 2006, and 2.2 per cent fewer in the year to December 2007 (compared with 2006). This is in line with the national figures. Fewer homes traded means less new and alteration building work. Nationally, non-residential building is still showing signs of strength. The total value of non-residential building activity in New Zealand increased by 6.2 per cent in 12 months to December 2007, and the December quarter was 7.1 per cent greater than the 2006 December quarter. In Auckland city the story is a little different. In the December 2007 quarter the value of non-residential building work was $122m, 11.2 per cent lower than the previous December quarter. In annual terms, this means that the total value for the year to December 2007 was 15.2 per cent lower than the previous year. The last three quarters of 2007 were all lower in value than their respective 2006 quarters.
Matching the fall in non-residential consents was businesses' intention to invest in buildings. This was down in the December quarter. In Auckland city those intending to invest more in buildings over the next 12 months decreased by 19 per cent (net). Despite the slowdown, the value of non-residential consents is still high. Furthermore, non-residential building might expect to pick up as more infrastructure and Rugby World Cup projects begin within the city. Analysis and predictionsThere are some strong opposing forces at play in the economy. Inflation will continue to trouble the Reserve Bank over the next year. High commodity prices in the dairy sector look to keep economic growth fairly strong (although drought affected production will reduce the final payout). The very tight labour market and wage growth, the potential for a large government spend up in an election year and promise of tax cuts will all contribute to inflation. The emissions trading scheme's effect on energy prices has now been included in the Reserve Banks forecasts of inflation, and this scheme has added to expected inflation over the next couple of years. Factors offsetting the upside inflationary pressures are the lethargic housing market; the effect of high interest rates on consumer expenditure; the effect of the sub-prime housing market fallout on the economic growth of our trading partners (eg USA) and level of exports we send to those countries. Economic growth in our closer trading partners, such as Australia and Asia, is predicted to be better than the US. However, the credit crunch stemming from sub-prime housing crisis will play a major role. Retail banks now charge each other more to borrow and lend money (the swap rate), which will in turn influence consumers ability to borrow and spend. [1] Those actively looking for, or holding, a job as a share of the working age population. Published April 2008 |
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