There are some noticeable cracks appearing in the previously robust employment growth story.  Job numbers in June 2007 – as measured by the Household Labour Force Survey (HLFS) – were 32,000, or 1.5%, up on a year ago.  This figure, however, masks a sizable shift in composition.  In particular, this net expansion is now concentrated in increased part-time positions, with few extra full-time positions recorded.  Thus our measure of full-time equivalents in the June quarter was just 0.7% higher than year-earlier levels.

Of the 29,000 net increase in part-time positions, some 25,000 was accounted for by the retail trade and accommodation, cafes & restaurants sectors.  A further 4,000 were added to part-time positions in business services, with another 3,000 in health services.

As to full-time positions, the construction industry continues to stand out – with an extra 8,500 jobs added between June 2006 and June 2007.  Notably, the retail sector added 6,500, with another 3,000 in the accommodation, cafes & restaurants sector.

On the other hand, the plight of the tradable sector is clearly illustrated by the manufacturing employment story.  Full-time positions totalled 243,000 in June 2007, some 16,500 below that of 12 months ago.  However, respondents to the Business New Zealand PMI survey continue to indicate the lack of skilled labour as a primary constraint in this sector.  The mis-match in these data suggests a resilient core of the manufacturing industry that is set to expand again when a competitive environment emerges.

On this background, we are forecasting growth in annual job numbers to slow to 20,000 through to the middle of 2008, before climbing again thereafter.  This takes full-time equivalent employment growth to under 1%pa over the coming year.

A portion of this slowdown in job growth will impact on labour force participation rates.  Currently, at an HLFS high of 68.4% (average for year to June), we had previously expected this to push through 70% over the forecast horizon.  However, the cracks now appearing in the labour market situation suggest this to be unlikely.  However, we do expect participation rates to be reach 69% over the latter years of the forecast period.

Inevitably, another portion of the easing in job growth will also impact on unemployment rates.  We do not see a surge here, but unemployment will push up to lie in the 4% to 4.5% range over the next couple of years.

Migration

Net migration inflow had eased back to a projected annual 5,000 over the next six months.  Indeed, we believed it had reached its trough.  However, we would now expect financial turmoil (like we now have) to be the sort of bad news to set people voting with their feet.

The last major collapse (1988-91) was complicated by the major restructuring of NZ industries beforehand, which had already caused a major migrant outflow.  It could be that that collapse lifted the outflow from 60,000 in 1986-87 to 70,000 in 1989.  The inflow slowed and then picked up again.

This time around we are not expecting such a major impact, but it would be foolish to think there would be no impact.  We forecast the gross outflow (which had previously plateaued) to lift again, from its current annual rate of 73,000 to be 79,000 for the year to June 2008.  As to the inflow, we expect it to remain steady at around the annual 82,000 mark over the coming year then carry on trend growth.  This results in net migration inflow dipping to a mere 3,000 in the year to June 2008, before again rising.