CTU Economic Bulletin No. 35

The latest from the labour market - March 2003.

Comment

Most of the news - including economic aspects - is being crowded out by the Iraq War.

The recent announcement of a 0.8% increase in GDP for the December 2002 quarter and 4.4% for the 2002 year was overshadowed by an economic outlook dominated by the global effects of the war, a growing current account deficit, falling exports, a high NZ dollar, the prospect of electricity rationing, and the continuing drought in many parts of the country.

In addition, it is now becoming clearer that retail and housing activity is slowing.

As I have mentioned in previous Bulletin's, CTU opposition to the war is not primarily based on its economic impact in New Zealand. But it is anticipated that if the war is prolonged, then oil prices will rise, and also trade will be more severely disrupted.

But in any case, most of the economic indicators in the USA have been worsening, the Japanese economy continues to stagnate, and the latest combined growth forecast for 2003 for our top 14 trading partners has been revised down in March to 2.7% from 3.5% last August.

All this adds up to a compelling case for the Reserve Bank to lower interest rates but so far this has only been hinted at for later in the year, rather than signalled. Some commentators are predicting early June as a first move.

Meanwhile the electricity crisis is yet another example of the deregulation of the 1984-99 period continuing to haunt us in the new millennium. Workers experiencing (or facing the prospect of) lay-offs or cuts in hours want to know what can be done immediately to sort out the problems caused by spiralling spot prices.

Obviously some form of price control while a restructuring of the sector is carried out would be a good start. The Winter Electricity Task Force is charged with looking at the current problems caused by increased demand for electricity (up 5% from last year), supply constraints on gas, capacity to extract coal, and lower levels of rain. Added to this in the short term is maintenance due at Huntly and Taranaki.

Persistent rain in the right places would ease some of the pressure, but the fundamental problem is that we cannot develop an economic development programme in this country if we are constantly undermined by failing infrastructure, and absurd market models that allow a major strategic resource to spike up so severely in price that workers are laid off.

The CTU is due to meet the Minister of Energy shortly and is working with the unions most affected at this stage.

Economic Snapshot

This is a snapshot of key indicators for unions. Consumer prices rose by 0.6% in the December 2002 quarter and 2.7% in the December 2002 year.

The next update is due on 15th April. Food prices rose 0.1% in February 2003 and 0.6% in the February 2003 year. Unemployment is at 4.9%. Wage figures were updated in February. Ordinary time wages as measured by the Quarterly Employment Survey (November 2002) were up by 3.3% in the private sector and 3.7% in the public sector.

The Labour Cost Index increases (December quarter 2002) showed private sector wages up 2.1%, and public 2.6%. The key statistic for unions to note probably is that the LCI shows that for those firms where there were wage increases in the last measured quarter (15% of those surveyed), the average rate of increase was 3.9% and the median increase was 3%. The increase in GDP for the December quarter was 0.8% and 4.4% for the 2002 year. The current account deficit is estimated to be 3.1%. The official cash rate is 5.75%.

Economic Growth

GDP was up by 0.8% in the December 2002 quarter and 4.4% from December 2001. Over the year, house construction was up 20.4%, spending by consumers on durable goods up 8.3%, and there was a 6.6% increase in capital expenditure on plant, machinery and equipment.

Imports were up by 8.8%, compared with export growth of 7.6% (including a 14.1% rise in dairy export volumes). Some of the underlying factors affecting GDP growth were demand for housing, migration, and record farm incomes.

Slower wood processing and machinery manufacturing started to impact on GDP in the second half of 2002. However the combined effect of lower commodity prices, the higher NZ dollar, and what the BNZ describes as "depressed world growth amid war, oil price and sharemarket worries" will impact on GDP for 2003.

In addition, the difficulties finding employees (despite 100,000 unemployed!), infrastructural problems including electricity and roading, and low levels of investment over many years in machinery and technology, are also likely to constrain growth. Forecasts for GDP growth in 2003 are around the 2.5% to 3.0% mark.

Interest Rates

The Reserve Bank left the OCR (official cash rate) at 5.75% on 6th March. Many expect a cut on 5th June with an overall cut to 5% by the end of the year. The next two key bits of data for the Reserve Bank to consider will be the CPI for the March 2003 quarter, and the next Quarterly Survey of Business Opinion which may indicate the level of capacity constraints.

For the CTU, the overwhelming evidence of a slower economic outlook over the coming year means that a cut should have already been made by now.

Food Prices

Food prices rose 0.1% in February 2003. Increases in grocery food prices were partly offset by lower prices for fruit and vegetables and restaurant meals and ready-to-eat food. Meat, fish and poultry prices recorded no overall change. For the February 2003 year the food price increase has been 0.6%.

Foodbank Users Survey

The Poverty Indicator Project research documents the circumstances at seven foodbanks across the country.

Results of the survey show that sole parent and single person households are the most common household types seeking foodbank assistance, the percentage of households with children is 60% or greater at five of the seven participating foodbanks, and most clients are aged between 25 and 40.

Also, the proportions of Maori clients are over-represented, relative to city census figures, at every agency.

Three-quarters or more of people seeking foodbank support receive a benefit as their only source of income. Foodbank clients are on low fixed incomes. This quarter the weekly household median income ranged from $200 to $320 across the seven agencies. Once housing costs were paid for, clients had a median weekly disposable income of between $100 and $211. Over 60% of clients spent more than 30% of their income on housing.

Government Accounts

The Governments operating surplus is continuing to run ahead of forecasts. For the seven months to January 2003, the surplus came in at $2.45 billion - $737 million more than forecast in December.

Higher returns from GST and income tax bolstered revenues. Changes in timing of expenditure are also a significant factor affecting these figures, but there seems little doubt that a small but significant structural surplus is emerging.

Net Government debt, which excludes the debt of state-owned companies, totalled $18.5 billion, about 14.7% of gross domestic product.

Employment

There has been strong employment growth and falling unemployment. The number in employment went up by 44,000 in 2002.

Unemployment is at a 15-year low of 4.9%. However, recent analysis of hours worked show up that two-thirds of additional hours worked from 1986 - 2001 were from people working over 40 hours a week.

This confirms union concerns about excessive hours being worked by a growing proportion of the labour force. Another figure I have mentioned before is that since June 1998, two thirds of the new jobs have gone to workers aged over 45 years and only 14% to those under 25 years who make up 40% of the unemployed.

Meanwhile a timber mill in South Otago is laying off 80 staff due to "the higher value of the Kiwi dollar". And, the number of job advertisements fell by 2% in February.

Underlying demand for labour remains strong, but the trend also seems to be weakening.

Trade and Debt

New Zealand private debt levels are growing. They rose another $1.6 billion in the December 2002 quarter to be just over $100 billion, or 80% of GDP. ,/p>

The current account deficit was 3.1% of GDP compared with a 4.4% deficit in Australia, and 4.8% in USA. But the NZ current account deficit is 4.5% in seasonally adjusted terms and an indication of what is likely to happen.

The trade surplus for February 2003 was smaller than usual at $21 million. Export prices continue to fall with a 5.3% overall drop in prices for the December 2002 quarter. Import prices fell by a lower 2.6% in this period.

The trade weighted index shows that the NZ dollar is more than 19% higher than in February 2002. The ANZ commodity price index is 28% below its April 2001 peak with 80% of the decline due to the stronger NZ dollar.

Tourism has however been a bright spot in the trade figures. December 2002 travel receipts rose to $6.3 billion, producing a net travel surplus of $3.1 billion. Without this travel surplus our current account deficit would now sit at 5.6% of GDP.

Tourist numbers were up 5% in February 2003 compared with 2002. And container volumes through the Port of Auckland continue to grow - - up 8% for the year ending February 2003.

NZ Trade and Enterprise

The merged Tradenz and Industry New Zealand organisation will be known as NZ Trade and Enterprise. Submissions on the Bill creating the organisation are due by 10th April. ,/P.

Industry New Zealand recently announced a $1.5 million grant to EDS to develop a major client contact centre and software applications development centre in New Zealand and could see 360 jobs created over three years. Jim Anderton, Minister of Economic Development said that "If EDS doesnt meet its targets the money will be refunded".

Forestry

The forest industry harvested a record 22.6 million cubic metres of logs in the year ended December 2002, up from 15.3 million cubic metres for 1998 - an increase of 48% in four years.

Most of the increase in harvesting has occurred in regions such as Northland, Hawkes Bay/Gisborne, Nelson/Marlborough, and Otago and Southland. ,/P.

The Central North Island is the countrys largest timber-producing region, supplying over 50% of the national harvest. Harvesting in the Central North Island has remained relatively static over the last four years with around 10 million cubic metres of timber harvested annually.

Thirty-seven percent of the logs harvested are processed into sawn timber by New Zealand sawmills. Forty-two percent of this sawn timber was exported in the December 2002 year - the main export destinations being the USA, Australia, Japan and Taiwan.

Just over one-third of the harvest is exported as unprocessed logs, with Korea, China and Japan the main destinations. Other components of the log harvest include pulp logs (16%) for pulp and paper production and small logs (7%) used mainly in fibreboard manufacture and for fence posts.

Retail

Retail sales were up by 1.1% in January 2003 and up by 7.9% in the January year. The main factor contributing to the January 2003 result was rising car sales partly because of population growth and also higher sales in auto services due to higher petrol prices.

Migration

In the year ended February 2003, there was a net inflow of 41,600 permanent and long-term migrants, compared with 22,000 migrants in the previous February year.

This resulted from 98,700 permanent and long-term arrivals (up 12,400), and 57,200 permanent and long term departures (down 7,200) in 2003. Compared with the February 2002 year, non-New Zealand citizen arrivals were up 10,600 in 2003, and New Zealand citizen departures were down 8,200.

There were significant net permanent and long-term inflows from China (16,200), India (6,400), South Africa (2,500), Japan (2,300), Korea (2,200) and Fiji (2,000) in the February 2003 year. There was also a substantial net inflow from the United Kingdom (6,900), which was more than double the February 2002 year figure (2,900).

There was a net outflow to Australia of 11,500, compared with net outflows of 17,300 in 2002 and 31,500 in 2001.