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June quarter data confirms a continuation of strong job growth. The number in employment rose by a promising 82,000 over the 12 months to June. This takes the total number of people in jobs to over 2.3 million and well above the pre-crisis levels. It is clear that this surge has come after a considerably difficult period for job hunters. As pictured, it is only over the latest 12-18 months has there been a noticeable pick up in employment numbers.
Across the regions, a large proportion of the increase in headline job numbers since 2008 has been in the Auckland area. In particular, of the 135,000 increase since 2008, nearly 75,000 is accounted for by additional employment in the Auckland area. Otago, Wellington, and Canterbury have each recorded between 10,000 and 30,000 extra jobs over the past six years. Growth in other regions has been, at best, marginal.
However, over the shorter term of the past year, growth in employment has been dominated by that in the Canterbury area. Of the 82,000 added nationally over the past 12 months, more than 37,000 were in Canterbury, with a further 21,000 in Auckland and 10,000 in Wellington. Again, the recorded growth in jobs in other regions was marginal.
Looking at the industry split, the number employed in the building and construction sector recorded the highest increase. In particular, jobs in this sector rose by 30,000 over the past year.
This is clearly good news, reinforcing other signals that the Christchurch rebuild and other infrastructure investment projects are gathering a degree of momentum. Other growth sectors over the past year were retail trade & accommodation, professional & business services, public administration, education and health.
The absence of the tradable export sector from this growth story is a sobering message. The importance of rebuilding Christchurch and infrastructure investment is unarguable, but little if any growth in the manufacturing, agriculture, forestry, fishing and related transport sectors is worrying.
This data confirms the nature of the recovery, and reflects ongoing difficulties in the broader export sector.
Reductions in prices at recent dairy auctions have brought unease as to the future of the dairy export boom. Indeed, the forecast cash payout for the current 2014/15 season is now down to a farmgate payout of $6.00 per kg of milk solids, plus an estimated 20-25 cent range for dividend payout. Consequently, a cash payout of $6.25 would be well below the total payout of $8.75 enjoyed last season. The likelihood of less cash around regional New Zealand is high.
Further, the forecast payout for this season would take the payout in real inflation-adjusted terms back to marginally above the average of the past 41 years. As the chart illustrates, the cash payout to dairy farmers has fluctuated considerably in real terms over the past few years. However, the real payout has been above the four-decade average for eight of the past ten years.
In terms of dairy export revenue, Statistics New Zealand reports the 3 months to July as earning 23 percent more than the same period a year ago. This is made up from production levels 20% up on a year ago, and consequently only modestly higher prices. Fonterra production data similarly indicate a strong production surge over the first two months of the season (June and July) up 2 million kgs to 24 million on year earlier levels.
Looking closer at the detail, the apparent production surge is overstated due to the impact of the 2013 drought on yields at the end of the 2012/13 season.
Price signals are clearer though. Dairy auctions through June, July and August have been close to unanimously negative. Six of the seven trading events since the beginning of June have recorded declines in the Global Dairy Trade Price Index. As a result, overall dairy prices as measured by this index are now 25 percent below that recorded at the start of June.
Amongst the individual commodities, both whole milk and butter prices have slumped 25 percent, with skim milk prices by 33 percent, below those of early June. Numerous reasons underpin the slump, with solid global production levels cited as important. Output in Europe and the United States are up on previous years. In addition, an easing in demand from China as stocks are reduced has also influenced the supply-demand balance. In this context, yet to be apparent are impacts from embargo on trade with Russia as a result of conflict in the Ukraine.
Overall, while the dairy payout is set to be low this season, volatility in prices is also likely to remain a feature on the world scene.
Electronic card transactions data confirm an ongoing lift in retail spending. This data suggests sales turnover across the retail industry is averaging about 5.5 percent higher than a year earlier.
However, growth ranges within the sector from almost zero for apparel stores to nearly 17 percent for services. Sales of durables (furniture, hardware, whiteware and electronics) are at the lower end of this range – recording a modest 2 percent increase on the previous year. The figures for apparel and durable sales are likely to be influenced by ongoing discounting of prices as market share is protected. The effect of the value of the NZ$ will also be helping keeping prices low here.
At the other end of the spectrum, services (up 17 percent), hospitality (up 11 percent) and motor vehicle related (up 10 percent) sales are buoyant. These increases are consistent with growing employment numbers, and are reflected in tourist activity as well as in new car registrations.
In particular, total guest nights are now close to 9 percent above year-earlier levels, with domestic guest nights up 12 percent and international guest nights up 4 percent. And new car registration topped 200,000 over the past 12 months, more than 20 percent up on the previous year.
Recent statistics report a continued surge in activity in the tourist industry - our second-biggest export revenue earner. Annual visitor numbers are now at a smidgen under 2.8 million – some 6 percent up on the 2.65 million level of 12 months ago.
Indeed, the annual total of visitors to New Zealand has grown by more than 400,000 over the past five years. By source market, this increase has been dominated by the surge in visitors from China (up 134,000) and Australia (up 119,000). On the other side of the equation, there was a decrease in visitors from the UK (down 53,000) over this period.
However the large increase in visitor numbers over this period has hidden a difficult period for the industry in terms of revenues. This is best seen in the picture of international guest nights, which have only recently recovered to levels of five years earlier.
Generally speaking, guest night numbers is a better indication of revenue than visitor numbers. The plummet in international guest nights over the 2010 to 2012 years was also reflected in tourism export receipts stalling at an annual $8 billion.
The level of the NZ$ exchange rate is given as one reason for this, but another is the changing market mix of visitors. Visitors from Australia, in particular, are more likely to stay with friends and relatives and hence act to dampen guest night and revenue figures. Further, arguably, the China market is in its infancy as far as visitor offerings are concerned – hence their average stay and spending levels are lower than earlier averages. Again, this can reduce the impact on the guest night and export revenue figures.
Across the regions, the latest surge in international guest nights is most promising in the Southland (including Te Anau), Otago (including Queenstown) and the West Coast. All of these three regions are currently recording double-digit annual percentage growth rates.
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