CTU Economic Bulletin No. 37

The CTU monthly commentary - May 2003.

Comment

The economic outlook continues to be one of reduced economic activity. This should mean another reduction in interest rates in early June.

Some of the factors which will impact on the Reserve Bank decision will be slower retail sales, weakening in Auckland housing turnover, slower growth in wages, the effect of electricity price rises, ongoing effect of SARS on Asian trading partner demand, appreciation in the NZ dollar which will tend to drive CPI inflation lower, and lower export returns. The reasons why a 0.5% rate cut is anticipated by some economists is that there is now a concern that the wide range of adverse factors impacting on the economy could mean a sharper slowdown than seemed likely a few months ago, and also a large rate cut is more likely to stem an appreciation of the NZ dollar.

On another matter, the issues around employment-based retirement savings are likely to be highlighted by the Periodic Reporting Group set up on retirement savings and also at a forum the Investment Savings and Insurance Association are holding in a couple of months. Involvement in employment-based retirement savings has fallen to 15% of the workforce.

There is no doubt that there are many obstacles including: low wages (including the problem of lower weekly and hourly earnings for women), a long list of employment conditions that workers may want addressed before retirement savings are claimed, unwillingness of many employers to contribute, the fact that tax incentives on employer contributions only apply to those on more than $60,000, and falling confidence in investment returns.

Another major obstacle is the many debt pressures workers face. Household debt as a proportion of household annual income rose from 57.5% in December 1991 to 113.3% by December 2002.

A growing proportion of workers now have the burden of student debt. It will not be easy to design a set of initiatives that can address debt, low levels of savings, equity issues, and a secure employment-based tier of retirement savings to complement state provision. Rising real wages across the economy, and industry co-operation to develop employer contributions and promotion of retirement savings schemes alongside independent advice for workers will be vital factors.

But there is no doubt that there is a much better environment to discuss this than was the case say five years ago and it is important that union experiences and views are included in the discussion of issues and options. The CTU will be trying to get a clearer picture of union experiences whether they are positive or negative (in both the public and private sectors) as part of our work to promote retirement savings.

Economic Snapshot

This is a snapshot of key indicators for unions. Consumer prices rose by 0.4% in the March 2003 quarter and 2.5% in the March 2003 year. Food prices fell 0.4% in April and by 0.7% in the April 2003 year. Unemployment is at 5%. Ordinary time wages as measured by the Quarterly Employment Survey (February 2003) were up by 2.5% in the private sector and 1.9% in the public sector.

The Labour Cost Index (March 2003) showed private sector wages up 2.2%, and public 2.5%. 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 official cash rate set by the Reserve Bank is 5.50%.

Wages

Ordinary time wages as measured by the Quarterly Employment Survey (February 2003) were up by 2.5% in the private sector for the year (but fell by 0.1% in the quarter) and rose by 1.9% for the year in the public sector (up 1.3% in the quarter). The Labour Cost Index (March 2003) showed private sector wages up 2.2%, and public 2.5%.

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%. This is the same as the last quarter.

The LCI showed the highest annual increase in the private sector was in finance and insurance at 2.8% and the lowest in accommodation, cafes and restaurants at 1%. The average ordinary time hourly rate as measured by the Quarterly Employment Survey is $19.15 with $17.98 in the private sector and $23.90 in the public sector. The average hourly rate for women is $17.41 which is 84.6% of the male rate at $20.57.

Employment

Employment increased for the eleventh consecutive quarter to 1,895,000. The employment figures show that the level of employment is 1.5% up on a year ago. However, manufacturing employment has declined by 5% over the year. This contrasts with wholesale and retail trade which was up by 5.1% and construction employment which rose by 14.2%. Unemployment is now at 5%.

That is 99,000 unemployed, a jobless rate (this measure includes those not actively seeking work) of 174,600 and an estimate of 96,600 underemployed (part-timers wanting more hours). The M?ori unemployment rate is 10.8%, and it is 8.3% for Pacific peoples. For P?keha the rate is 4.1%. The unemployment rate is 2.1% for those aged 45-49 compared with 15.8% for those aged 15-19 years.

Trade

The preliminary April merchandise trade balance showed a surplus of $17 million. The annual balance was a deficit of $1,890 million. Exports returns were down 9.4% over the year despite an estimated 7% increase in export volumes. Imports also fell in the last year (by 10%) mainly due to reductions in oil (prices and volumes), aircraft and parts, and mechanical machinery and equipment.

Also, the New Zealand dollar was 13.8% higher in April 2003 than in April 2002, according to the trade weighted index. The outlook is still not positive with the effect of the high exchange rate, lower commodity prices and evidence of lower export volumes in some sectors due to electricity prices.

Hospital Expenditure

The combined operating deficit for the 9 months to the end of March 2003 was $124 million which is $8.3 million less than for the same period last year.

Housing

Nationwide house sales fell by 2.9% in April but are 6.3% higher than a year earlier. The median house price rose 7.4% annually to $203,000 ($290,000 in Auckland). Meanwhile there were 2,232 new dwelling consents for April, 35% of them in Auckland.

On the Farm

There has been a 13% drop in the value of pastoral exports in the March 2003 year. This has been caused mainly by a fall in dairy prices. In fact there was a 21% rise in dairy volumes (and dairy cattle numbers have grown to 5 million - up by a third over the decade) but also a 21% fall in the last year in the value of dairy exports. Forestry exports rose by 1.7% in value over the year.

Producer Prices

Producer prices (input) were down by 1.3% in the last year. Output prices fell by 0.4%. If we remove the impact of a recent rise in electricity prices (18.6% in the quarter), then it is clear that the underlying trend in producer prices is consistent with a low inflation environment.

Overseas Investment

The level of overseas investment in 2002 was $398 million - the lowest in a decade.

More Economic Development Funds for Polytechnics
There has been another round of funding for Polytechnics on the basis of their contribution to regional economic development. This funding of $1,068,000. is in addition to nine proposals totalling $1,304,189 approved for the 2002/2003 year under the fund in 2002. Latest approvals are:
- Tairawhiti Polytechnic - $81,500 to explore ways of meeting education/training needs for primary production with emphasis on organics;
- Western Institute of Technology at Taranaki - $300,000 to create a Centre of Applied Engineering;
- Whitireia Community Polytechnic (Porirua) - $ 78,500 to support the ICT industry in Wellington region and assist ICT graduates find relevant employment or create new businesses;
- Wellington Institute of Technology (WELTEC) $152,000 to conduct an analysis of the skills needed by companies in the creative/specialist manufacturing sector so that current employers can build on advanced design and manufacturing technologies and business processes;
- Otago Polytechnic - $90,000 to undertake an extensive skills audit of current and future education, training and information needs of Central Otago industries, in particular viticulture, winemaking, horticulture, tourism & hospitality. They will also develop and/or modify Polytechnic courses to bridge the identified skills gaps, and provide an education resource centre;
- Bay of Plenty Polytechnic - Wood Processing Strategy - Road Transport Project: - The wood processing industry has identified a shortage of truck drivers. The grant of $114,200 seeks to help address the shortage in the Central North Island and Eastern Bay of Plenty by investigating developing training programmes for transport managers and new entrant truck drivers. The programmes are intended to enhance the ability of the regional transport industry to recruit, train and retain quality staff;
- Bay of Plenty Polytechnic - Aquaculture and Marine Research - $115,000 to set up a Pacific Coast Research Centre. The centre will analyse and evaluate marine, fisheries and aquaculture activities;
- Waikato Institute of Technology - ICT Sector - E-Commerce Centre project - $137,400 to establish an e-commerce centre in Te Kuiti that will assist local business to make the most use of e-commerce.

M?ori Population Growth

New Zealands M?ori population is projected to reach 749,000 in 2021. This is an increase of 163,000 or 28% over the estimated resident M?ori population of 586,000 at 30 June 2001.

Migration

In the year ended April 2003 there were 98,200 permanent or long-term arrivals, up 8,300 or 9% on the April 2002 year. Over the same period permanent and long-term departures fell by 5,700 or 9% to 56,100.

The overall result was a net migration gain of 42,000 in the April 2003 year - 50% higher than the net inflow of 28,100 people in the previous year. Compared with the April 2002 year, New Zealand citizen departures were down 7,100, and non-New Zealand citizen arrivals were up 6,400. There were significant net inflows from China (15,400), India (6,300), South Africa and Japan (both 2,300), Korea (2,100) and Fiji (1,900) in the year ended April 2003.

There was also a substantial net inflow from the United Kingdom (7,700), nearly double the April 2002 year figure (3,900). There was a net outflow to Australia of 10,600 in the April 2003 year, compared with net outflows of 15,400 in the April 2002 year, and 31,100 in 2001.

Retail

Seasonally adjusted total retail sales decreased 0.7% in March 2003. Seasonally adjusted total retail sales increased 1.7% (volumes up by 1%) in the March 2003 quarter, compared with the December 2002 quarter.