Monday, 26 March, 2018
Household and business confidence are signalling a sustained economic recovery in the Upper Hunter. These measures improved in the December quarter, according to our latest Upper Hunter Region Economic Indicators.
In the six months to January, the ABS Labour Force survey indicates that employment numbers increased by approximately 5,900 in the Hunter Balance (the region leaving out Newcastle and Lake Macquarie)*, with total employment exceeding the peak of September 2013.
Improvements in the fortunes of the region’s mining operations, sustained over the second half of 2017, are likely to have benefited the region in direct employment. This will enable additional benefits to flow directly and indirectly to the local business sector, via local supply chains and local household expenditure by employees.
However, household spending remains subdued over the longer-term, given high household debt and low wage growth. Australia-wide the average household mortgage debt-to-income ratio rose from around 120 per cent in 2012 to around 140 per cent at the end of 2017.
Commonly cited reasons for Australia’s low wage growth include the remaining spare capacity (such as higher than desirable unemployment and under-employment) in the labour market. This is seen to be partly a result of the unwinding of the mining investment boom and the continuing shift from mining to non-mining investment. Other culprits cited have included lower inflationary expectations and changes in employer-employee bargaining relationships. The Reserve Bank is among others who have been overly optimistic in their wage growth predictions for a number of years. They have surmised that technological change and globilisation are key causal factors, increasing competition between firms and job-insecurity for workers.
However, we are perhaps seeing evidence of reductions in spare capacity within the Hunter Balance labour market. Hiring intentions over the next year trended up in the Upper Hunter since late 2015, consistent with publicly available labour market data. There has also been an increase in the share of firms citing finding suitable labour as the main constraint on their business, both in the Hunter and Upper Hunter in late 2017. This was accompanied by a decline in the share of firms citing a lack of sales and orders as their main business constraint.
Improved business performance and outlook can be attributed in the Upper Hunter to sustained higher coal prices. However improved conditions have also been witnessed across the state and nation as a result of historically low interest rates and improvements in the national and global economy. Business confidence in the Upper Hunter for the coming quarter is the best it has been since 2005.
However, the Pulse survey suggests a greater improvement in confidence in the short-term regional outlook than for the long-term. That appears to reflect a degree of uncertainty around whether global prices for coal will remain high over the longer-term.
*Comprises Upper Hunter, Muswellbrook, Singleton, Cessnock, Maitland, Port Stephens and Dungog Local Government Areas.
This Opinion Piece was published in the Newcastle Herald on 27 March, 2018. Image courtesy of Muswellbrook Chronicle