Economic analysis for Auckland
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December 2007
December 2007
This 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:
- Participation in the workforce is higher in the city than at anytime since
1990, and wages are rising faster in Auckland than in New Zealand as a whole.
- House price growth remains higher than the New Zealand average, but the number
of house sales in the year to December was down 28 per cent.
- Residential building consents are down, as they are nationally, and activity
in non-residential consents is sliding faster than the national average.
Economic conditions December 2007
Labour market and wages
Unemployment 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 spending
Retail 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.
Housing
Strong 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 consents
Closely 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 predictions
There 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
