Regions race to recovery

Southland has recently had the highest employment rate with 70.6 per cent of the working-age population in work. Photo / Dean Purcell

People in Southland have done better than most when it comes to having a job during the recession, according to a Department of Labour report.

Its Market Overview 2009 survey says Southland has been one of the strongest regional economies during the five years up until its survey period ended in September.

"Wellington was also a strong performer," says the report. "These regions not only have a high proportion of the working-age population participating in the labour force but also a low proportion of people unemployed."

The report says Southland had the highest employment rate with 70.6 per cent of the working-age population in work, followed by Wellington at 67.5 per cent .

Northland had the lowest employment rate during the survey period at 58.4 per cent, followed by Bay of Plenty at 61.1 per cent. The largest increase in the employment rate over the five years covered by the report was in Southland followed by Manawatu-Wanganui and Wellington.

But not doing so well, according to the survey, is Canterbury.

"While scoring highly on current labour market indicators, [Canterbury] was in the bottom half of regions when examining the change in these indicators," says the report. "This is likely to be due to its strong starting position."

Tasman, Nelson, Marlborough, West Coast and Otago have performed similarly to New Zealand as a whole over the survey period, both on current labour market indicators and on the changes in these indicators to last September.

Auckland and Waikato also scored similar to the national average when examining current labour market indicators. However, both these regions have experienced weak growth.

Northland, Bay of Plenty, Manawatu-Wanganui and Gisborne/Hawke's Bay were ranked the lowest on the key labour market indicators in the report. People in these regions are not only less likely to participate in the labour force but are also less likely to find a job if they look for one.

The report says there are some common factors among these four regions in that they are relatively rural areas with large primary sectors and a higher-than-average proportion of low-skilled jobs. They also have a large proportion of people aged over 65 and a population with fewer qualifications than the national average.

With the exception of the Bay of Plenty, the survey does show that things have improved on the work front in these regions.

As a result, they have generally "caught up" with the rest of New Zealand, say the report's writers.

However, they also say they are concerned that the downturn in the labour market has particularly affected regions that have below-average labour market outcomes, such as Northland and Gisborne/Hawkes Bay.

The unemployment rate in these two regions has spiked sharply and, says the report, there is a risk that the current downturn could cause regional differences and inequalities to increase and reverse the gains achieved over the prior four years (to September last year).

As the labour market has eased, northern regions appear to have been the most affected.

Northland's unemployment rate has risen from 4.7 per cent to 8.3 per cent while Gisborne/Hawkes Bay, Bay of Plenty, Waikato and Auckland have all experienced larger-than-average increases in the unemployment rate.

The slowdown in employment over the year to last September has been driven by the Auckland region, where employment has fallen by 2.8 per cent, or more than 19,000 people, due to employment declines in manufacturing, retail trade and finance and insurance.

At the time of writing this review of available data, it is impossible to know how regional employment levels have changed, given that more recent job data shows the country's economy is starting to bounce back.

For example, the Department of Labour's market update, released this month, appears to show New Zealand's economy grew by 0.8 per cent over the December 2009 quarter, the third consecutive quarterly increase.

Growth over the quarter was the largest increase for two years and confirms the economic recovery in New Zealand is gaining momentum.

The recovery, says the report, became more broad-based in the December quarter with a strong rebound in manufacturing activity, as well as growth in wholesale trade, retail and hospitality.

These were all industries that were severely affected during the downturn, both in terms of activity but also job losses. Overall, employment in manufacturing, retail and hospitality is down by 58,600 since December 2007.

Manufacturing activity rose by 4.5 per cent in the December 2009 quarter as domestic demand recovered, manufacturers benefited from strength in the Australian economy and firms started to rebuild their inventories.

Even more recent information from the Department of Labour's Jobs Online index showed a 6.6 per cent rise in the number of advertised vacancies in the three months to February this year, while the National Bank Business Outlook survey for February reported a net 9.3 per cent of firms intend to increase staffing levels over the year. Employment intentions are now well above their long-term average of 5.9 per cent.

The Westpac-McDermott Miller Employment Confidence Index showed employees remained optimistic in the March 2010 quarter. Employees are downbeat about current labour market conditions, says Department of Labour researchers, but their employment outlook for the year ahead is at a high level.

A net 14.3 per cent of respondents said they expect job opportunities to be plentiful in March next year. Confidence improved among young people, despite being hit hard during the recession, and for people in Wellington, Otago and Auckland.

There was strong growth in the key areas of business investment in the December 2009 quarter, with investment in plant and machinery and transport equipment up 4 per cent and 7 per cent respectively.

This signals that firms have begun acting on the increased business confidence reported over the second half of 2009. It is a positive sign for a return to employment growth in coming quarters, as suggested by firms' hiring intentions.

Despite expectations of continued economic growth, the Department of Labour says employment is unlikely to record any substantial increases until the second half of the year.

With a significant amount of spare capacity in the current workforce, the rise in labour demand is likely to be met by initially increasing the hours of current staff and then by hiring additional workers.

As a result, any employment growth in coming quarters is unlikely to be strong enough to absorb many new entrants into the labour force and prevent further small increases in the unemployment rate.

The Department of Labour expects the unemployment rate will peak at slightly above its current rate in the middle of this year. The labour force participation rate, however, has been volatile over recent years, and this will be a key determinant of the peak unemployment rate.

It is likely that the unemployment rate will remain elevated into next year given a modest recovery in employment is expected, says the report.

Continued high rates of labour force participation and strong population growth, on the back of above-average net migration inflows, will contribute to keeping the unemployment rate high. The average prediction in the March 2010 NZIER Consensus Forecasts is for the unemployment rate to fall to 6.2 per cent in March 2012.

In December 2008, the unemployment rate was a record 3.4 per cent.