Central Coast
Central Coast March Quarter 2011
Economic Indicators ECONOMIC INDICATORS
After strong signs of recovery from the Global Financial Crisis (GFC) in late 2009 and early 2010, economic activity in the Central Coast was disappointing during the three quarters to March 2011. Subdued conditions were especially evident in the local labour market. Both the participation rate and employment numbers fell back to levels prevalent during the GFC. Consumer and business sentiment did little to give confidence for the future. However, residential building approvals, new passenger vehicle registrations and recent business trading looked positive.
In summary
The number of people employed in the Central Coast fell dramatically from an all-time peak in April 2010. The weakness in the local labour market was also apparent in the declining participation rate. It fell to a record low of 52.5 per cent in early 2011. In addition, the unemployment rate rose to 7.2 per cent in February 2011. In March 2011 the situation improved slightly. Both the local economy’s relatively high dependence on consumer spending and sentiment, which are currently weak, and a soaring Australian dollar, may partly explain the current weakness in the labour market. This is exacerbated because the Central Coast does not directly share in many of the benefits of the resources boom compared with other regions.
The labour force
Despite disappointing developments in the labour market, recent movements in residential building approvals and new passenger vehicle registrations in the Central Coast were relatively positive. Both indicators were encouraging signs for the future development of the economy. Expected consumer spending has, however, remained subdued since the GFC. This is consistent with the March business survey’s finding, that 50 per cent of businesses considered ‘sales and orders’ to be the main factor currently constraining their output, and with the climb in the nationwide savings rate. Other business indicators such as non-residential building approvals, new commercial vehicle registrations and expected capital expenditure were relatively weak. Despite slightly below average business sentiment, profitability returned to neutral levels in March 2011 and trading picked up strongly in the first quarter of the year.
Households and businesses
Expectations for consumer spending over the next 3 months remain weak and an obstacle to improvement in local economic conditions. Currently low employment numbers and possible inflationary pressures may further weigh on consumers’ spending behaviour. This is aggravated by the relatively high dependency of local businesses on consumer spending. Increasing profitability and trading of local businesses suggest that the local labour market is likely to show signs of recovery after the marked weakness during the previous year. As a consequence of seven interest rate increases since October 2009, and a possible further tightening of monetary policy, economic conditions may remain difficult for some industry sectors in the medium term.
Outlook
Employment (annual change) - 10.7% Unemployment rate
6.3%
Participation rate
52.9%
Residential building approvals (Dec 10) -0.6% Commercial motor vehicles (Mar 11)
-12.5%
The arrows and figures refer to the direction and magnitude of movements in the current period relative to the same period a year earlier. The Central Coast Research Foundation (ABN 65 082 304 514) PO Box 322, Newcastle NSW 2300, Australia Phone: 1800 000 237; Fax: (02) 1800 000 238; e-mail: [email protected]; internet: www.hvrf.com.au/ccrf
No. 35 Issued twice yearly ISSN 1322-025X
The information herein is believed to be reliable and accurate. However, no responsibility or liability for the contents, or any consequence of its use, will be accepted by the Central Coast Research Foundation or by the staff involved in its preparation. © The CCRF 2011 Apart from any use as permitted under the Copyright Act no part may be reproduced by any process without the permission of the publishers.
Central Coast Economic Indicators Employment
Number of employed persons – Central Coast
Number employed in the Central Coast, March 2011 Males: Females: Total:
70,000 61,000 131,000
After a strong increase in employment numbers, to an all-time high of 154,300 persons in April 2010, employment in the Central Coast fell dramatically during the last year. In February 2011 only 128,600 people were employed in the Central Coast. This number was only slightly higher than the low in mid-2009, which was a result of the downturn during the GFC. This downturn in the Central Coast labour market was not replicated in the Hunter, where the number of employed residents kept growing until December 2010 and suffered only a minor setback in early 2011. This regional difference demonstrates that, nationally, there are big differences between resource based economies and those based on domestic consumption.
Participation Participation rates, March 2011 Central Coast: NSW:
Participation rate Central Coast and NSW
52.9% 64.5%
In contrast to the relatively high and stable participation rate in the State, the participation rate in the Central Coast economy was generally both more volatile and lower. Low participation may be a result of regional characteristics of the Central Coast, with more elderly and retired people living in the Region compared to NSW. Looking at the cyclical movements, participation dropped dramatically during 2010, reflecting the downward trend in employment numbers. The recovery of conditions in early 2010 when the regional participation rate rebounded was therefore only a temporary phenomenon. This suggests an overall weakening in the Central Coast labour market. When examining participation in greater detail, it becomes apparent that the fall in the participation rate of women was most marked (45.9% in February 2011 compared to 56% in February 2010).
Unemployment Unemployment rates Unemployment rates, March 2011 Central Coast: NSW:
6.3% (Note the chart opposite shows 5.4% the unemployment rate on a 3 month moving average basis)
The unemployment rate in the Central Coast increased from 3.7 per cent in November 2010 to 6.3 per cent in March 2011. While this increase is not alarming in itself, it compounded the downward movement in the number of employed persons and the falling participation rate described above. Together this data paints a picture of a relatively weak labour market that most likely reflects a lack of business confidence and subdued consumer sentiment and spending. The weakness of the local labour market may also be related to long term structural issues such as a lack of suitable labour and a difficult access to public transport.
Page 2 March Quarter 2011
The Central Coast Research Foundation
Central Coast Economic Indicators Full time and part time employment by gender Numbers of part-time employed, March 2011 and March 2010 March 2011: March 2010:
Male part time 6,800 16,400
Employment by categories – Central Coast Number (Thousands)
Female part time 30,800 37,500
Consideration of employment by gender and full time and part time categories enables a more detailed examination of the origins of the recent fall in employment numbers. Historically, part time employment was generally higher for females compared to males. This is most likely related to the fact that a higher proportion of females (32% in 2006) than males (25% in 2006) undertake unpaid childcare. This is an ongoing structural issue common across many regions in Australia. The recent widening of the gap between the numbers of men and women in part time employment has, however, arisen due to a major fall in the numbers of men with part time jobs. While the number of male full time workers increased slightly, adjustments in the labour market were borne mainly by male and, to some extent, female part time workers.
Hours worked – over and under-employment As in previous periods, under-employment remained a problem in the Central Coast in the March quarter 2011. The problem, however, has become more severe. In general, part time employees were asked to work less hours than they would like to work. This phenomenon is known as under-employment and is now only slightly better than it was in March 2009. Although the number of part time workers fell significantly in the last year, there is still pressure on the remaining part time workers in the Central Coast. In contrast, since September 2010, full-time employees were working approximately as much as they would like, whereas historically they have been asked to work more than their desired hours. Taken together, these are further signs of the weakness of the labour market.
Rate of over and under-employment Difference between preferred/required hours and actual hours
Employment by industry – Annual changes Greatest gains to previous year average: Education and Training: Public Administration and Safety
Employment change by industry - Central Coast +3,620 jobs +2,523 jobs
Number of jobs (Year average to February 2011 compared to year average to February 2010)
The Central Coast economy experienced major shifts in industry employment shares in the year to February 2011. Job losses have been most severe in manufacturing, and wholesale trade. Like accommodation takings discussed below, manufacturing will, to some degree, have been affected by the current unfavourable exchange rate. Wholesale trade, on the other hand, is heavily dependent on consumer spending which currently has a weak outlook. There were also sectors with significant employment gains during the year to February 2011 as shown in the opposite chart. The job growth in education and training suggests the creation of knowledge and acquisition of skills in the Central Coast. Strengthening the education sector and other knowledge based industries may prove fruitful for regional growth and employment in the medium and long-term. An increased skill level of the local workforce is also likely to drive the participation rate back to normal levels.
The Central Coast Research Foundation
March Quarter 2011 Page 3
Central Coast Economic Indicators New passenger vehicle registrations Annual change in number, March quarter 2011 Central Coast: NSW:
Annual change in new passenger vehicle registrations
+5.6% +6.3%
Motor vehicles are important to residents in the Central Coast as public transport networks are limited and less efficient than in many other urbanised areas. Accordingly, developments in this indicator of new vehicle passenger registrations are a good barometer of the health of the local economy and consumer sentiment. Despite the current downturn in the local labour market, the increase in new passenger vehicle registrations was particularly strong in the Central Coast in the three quarters to March 2011. In December 2010 growth in new passenger vehicle registrations clearly outperformed the State-wide growth. However, registration numbers in the Central Coast were low during the GFC and total registration numbers in March 2011 were still slightly below levels seen before the crisis. Overall this indicator presents a relatively optimistic view of household spending.
Residential building approvals Annual change in real value, December quarter 2010 Central Coast: NSW:
Annual change in residential building approvals Real value
- 0.6% +6.2%
In contrast to the weakness of the local labour market and despite the tightening of monetary policy, residential building approvals present a positive picture of the Central Coast economy. In the September quarter 2010 annual change in the real value of building approvals was at its highest level since the December quarter 2000. The real value of building approvals almost doubled to approximately $82 million within one quarter and has surpassed pre-GFC levels. Despite annual change being slightly negative in December 2010, the real value of building approvals remained healthy at approximately $45 million, only slightly below the five-year average. Home buyers and builders’ grants may have been one reason for the strong rebound of residential building approvals during 2010 and conditions may begin to moderate as the effect of this stimulus passes through the economy.
Average residential sales prices Annual change in average residential sales prices Average residential sales price – all dwellings, current (nominal) value, September quarter 2010
Real Value
Central Coast: $382,500 (Note: the chart opposite shows NSW: $512,000 changes in inflation adjusted prices) On a yearly basis, changes in inflation adjusted residential sales prices were almost flat (+1%) in the Central Coast in September 2010. In contrast to a relatively moderate increase in local average residential sales prices, house prices in the State increased by approximately 17% in real value and 24% in nominal value in the March quarter 2010. When looking at real house prices in the local economy, rather than nominal prices at the State level, which the media tends to focus upon, concerns about rising house prices are not supported by the data for the Central Coast in the latter part of 2010. Further, a possible tightening of monetary policy may weigh on residential sales prices in the future.
Page 4 March Quarter 2011
The Central Coast Research Foundation
Central Coast Economic Indicators Consumer confidence and spending
Consumer confidence and spending – Central Coast Confidence: +1=most optimistic; -1=most pessimistic Spending: +1=increase; -1=decrease
March 2011 – residents’ expectations for the Central Coast economy over the next: 3 months: 12 months:
Better 19%; Same 54%; Worse 18% Better 30%; Same 39%; Worse 21%
The latest consumer confidence data available shows that, when looking forward three months, consumers were neutral regarding the Central Coast economy. While there was a strong shift towards optimism by consumers after the GFC, in the months to September 2009, there was a moderation in sentiment after March 2010. The data for consumers’ expectations about spending during the next three months is different. Since the GFC, consumers have not returned to their usual optimism about spending in the coming months. This is consistent with economists’ findings that saving rates have increased nationwide. In order to restore sustainable economic development, it remains crucial, that local consumer demand and sentiment return to normal levels.
Household saving ratio
Household Consumption – Household savings The Household Saving Ratio estimates the proportion of household disposable income that is not being expended through consumption. The adjacent chart demonstrates that since 2005 the average Australian household has been increasingly inclined to save their income. Attitudes towards appropriate debt levels have clearly changed with rising interest rates and increasing economic and financial uncertainty. This data is not available on a regional scale, but there is no evidence to suggest that Central Coast residents vary significantly from the national trend in this regard. As a consequence, while household incomes have risen in recent years and the currency has made many imported goods cheaper, increasing debt repayments and an increased propensity to save have led to mixed fortunes for consumptionrelated sectors.
Australia, 1960 to 2010 20% 15%
10% 5%
0% -5% JUN 60
JUN 70
JUN 80
JUN 90
JUN 00
JUN 10
SOURCE: ABS Cat. No. 5204.0
Non-residential building approvals
Non-residential building approvals Real value (1998/1999 dollar)
Annual change in real value, December quarter 2010 Central Coast: NSW:
-78.6% -63.4%
Real values of both private and public building approvals are shown for a five-year period in the opposite chart. The countercyclical stimulus by the public sector during the months April 2009 until December 2009 is clearly evident. In order to stimulate private investment and regional growth, investments were undertaken in key infrastructure categories. As intended by the economic stimulus plan, private investment and building approvals were indeed picking up in the first three quarters in 2010. However, they experienced a major setback in the December quarter 2010. In this quarter total building approvals were at their lowest level in the last five years. Whether real building activity arises from the shown approvals depends on several factors, one of which is future monetary policy.
The Central Coast Research Foundation
March Quarter 2011 Page 5
Central Coast Economic Indicators
New commercial vehicle registrations Annual change in number, March quarter 2011 Central Coast: NSW:
New commercial vehicle registrations Number
-12.5% -4.9%
Business investment in new vehicles is a subcategory of businesses’ capital expenditure. In the last quarter this indicator pointed steeply downward. Currently high fuel costs do not entirely explain the sharp drop and it is likely that generally subdued consumer and business sentiment are contributing. Overall, the level of new commercial vehicle registrations does not support an optimistic view of conditions in the Central Coast economy and business activity within it. However, in December 2010, the weakness in non-residential building approvals was offset to some degree by a relatively high number of 1,231 new commercial vehicle registrations. Improved business conditions and sentiment will be imperative for the development of both indicators in the future.
Expected capital expenditure
Central Coast businesses expected capital expenditure
Proportion of Central Coast businesses expecting their capital expenditure to increase over the next 12 months March 2010: March 2011:
29% 28%
Businesses capital expenditure usually increases when there is a positive long-term outlook for the Region. Accordingly, expectations about this expenditure are a strong indicator of sentiment. However, some care should be applied in its interpretation. For instance, in March 2009 businesses were most pessimistic about their expected capital expenditure in the next 12 months when the stock of commercial vehicles increased. Currently this indicator is slightly below its average of the last 10 years but remains clearly in positive territory. Therefore, this indicator predicts that unless unanticipated external shocks occur, capital expenditure by Central Coast businesses will be around average in the subsequent two quarters.
Business profitability and trading
33% 48%
(March 2010: (March 2010:
10 year average
Profitability and trading – Central Coast
Proportion of Central Coast businesses reporting good profitability and trading over the past 3 months Profitability: Trading:
Next 12 months +1 = most optimistic; -1 = most pessimistic
-1 = very poor; 0 = satisfactory; +1 = very good
33%) 42%)
Business profitability fell quite dramatically between September 2009 and September 2010. However, there has been a rebound to satisfactory levels in March 2011. The drop in profitability is likely to have been one of the main contributors to the reduction in employment numbers, which was described in the analysis of the local labour market. In the six months to March 2011, business profitability improved and during that time trading was excellent. Therefore, given developments in the labour market usually lag behind other developments in the economy, there may be some improvement in the labour market in the coming months.
Page 6 March Quarter 2011
The Central Coast Research Foundation
Central Coast Economic Indicators
Business expectations for the regional economy March 2011 – businesses’ expectations for the Central Coast economy over the next: 3 months: 12 months:
Businesses expectations for the regional economy – Central Coast +1 = most optimistic; -1 = most pessimistic
Better 22%; Same 48%; Worse 23% Better 36%; Same 37%; Worse 14%
Business expectations for the regional economy over the next 3 months returned to neutral levels after a strong recovery in mid to late 2009. Expectations for the 12 month compared to the 3 month time horizon are more positive. Overall, these indicators show falls in sentiment to levels that would have been regarded as low before the GFC. They reflect a nationwide fall in business sentiment after the strong rebound of sentiment from the lows experienced in March 2009. Sentiment in the Central Coast economy is now below its 10 year average for both businesses expectations for the next 3 months and for the next 12 months.
Main factor currently constraining output
Main factor currently constraining output
Percentage of businesses considering ‘sales and orders’ as the main factor currently constraining output March 2011: 50% March 2006: 36% The chart opposite shows that sales and orders were considered by most businesses to be the main factor currently constraining output compared to suitable labour and operating costs. This is consistent with both the upward trend in the nationwide savings rate and current low consumer confidence and expectations for spending. The decrease in sales and orders may result from several factors. These include generally uncertain economic conditions, which contribute to a higher consumer saving rate. A decline in disposable income, resulting from lower employment in the Central Coast and higher mortgage rates as a consequence of an increasing RBA cash rate, may be other reasons.
Accommodation takings Annual change in real takings, December quarter 2010
Real value takings – hotels / motels Annual Change
Central Coast: 0.5% NSW: 4.4% Like manufacturing, tourism is considered to be one of the industry sectors most affected by the soaring Australian dollar. The opposite chart shows that the real value of takings of hotels and motels in the Central Coast increased at a slower rate compared to State accommodation takings. The relatively strong rebound in the State may be due to a high proportion of domestic tourists not affected by exchange rate changes or due to lower price elasticities for tourism compared to goods and services from other industry sectors. Due to already high interest rates and a possible further tightening of monetary policy, the already negatively affected local tourism sector is not likely to boost local economic activity in the near future.
The Central Coast Research Foundation
March Quarter 2011 Page 7
Central Coast Economic Indicators Innovation Innovation includes the development of improved products, services and processes, the creation of new markets and the use of new products. It is an increasingly important driver underpinning the growth and vitality of economies and productivity advances throughout the world. The CCRF has conducted innovation surveys twice yearly since March 2009 and is now able to use this data to describe and understand some of the factors which are associated with innovative businesses in the Central Coast.
Introduction of new goods and services The introduction of new goods and services is a very important part of innovation, and has been measured by the CCRF in their regular surveys in the Hunter and the Central Coast. The results show that during most of 2009 to March 2011, over one-third of businesses in the two Regions have introduced new products and services during the last 12 months. There was no significant change in the proportion of innovating businesses in the Hunter over the time period, but in the Central Coast there was a decline in the March 2011 quarter. This may be a reflection of the currently subdued economy in the Region and the relatively low profitability being reported by businesses during much of the time period. Currently there are various initiatives in the Central Coast to boost business awareness of innovation and assist businesses to constantly improve their ways of operating, as well as their products and services. Given the increased importance of these issues when profitability is weak these initiatives may be one way of boosting economic activity.
Introduction of new goods and services in the last 12 months Proportion of businesses 50%
March to Sept 2009
Dec 09 and March 2010
June and Sept 2010
Dec 2010 and March 2011
40%
38%
37%
40%
34%
34%
34%
36%
30%
26%
20% 10% 0% Hunter
Central Coast
SOURCE: CCRF and HVRF business surveys
Innovation by industry sectors Collection of data over an extended time period leads to a rich data base that can be analysed in more detail. This analysis revealed that there are differences in the proportions of businesses innovating in the different industry sectors in the two Regions. In the Central Coast innovation in the goods producing sector which includes agriculture, manufacturing and mining was significantly higher than it was in the knowledge based and person based sectors. Industries in the goods producing sector in both Regions were also significantly more likely than industries in the other sectors to introduce products and services that were new to the world and to have sought a patent. Given the considerable threats that industries such as manufacturing face from fierce global competition with countries that have comparatively cheap labour, and the current threat posed by the high Australian dollar, this evidence of innovation within the sector is encouraging and vital.
Innovation by industry sectors, 2009 to March 2011 Proportion of businesses introducing new products and services Goods producing 50%
Person based service
Goods related service
Know ledge based service 42% 37%
41% 40%
36% 33%
33%
30%
29%
30% 20% 10% 0% Hunter
Central Coast
SOURCE: CCRF and HVRF business surveys
Degree of innovativeness The diversity in the scale and nature of innovation is one of its major characteristics, and is clear from this data concerning the degree of innovativeness of the new products and services introduced by businesses in the 12 months prior to the surveys. In both the Central Coast and the Hunter the proportion of businesses who indicated that their innovation was new to their firm only was far greater than those indicating that they had introduced more novel innovations. It was noteworthy however, that regardless of the degree of novelty, Central Coast businesses who had innovated in the last 12 months were more likely than those who had not, to have expectations for good to very good profitability during the next 12 months. The factors nominated by the highest proportions of Hunter and Central Coast businesses as very strong motivators for their introduction of new goods and services were: satisfying demand from existing clients, expanding your client base and improving profitability.
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Degree of innovativeness Proportion of businesses who introduced new products and services New to the w orld
New to Australia
New to industry
New to firm only 72%
Central Coast
20% 11% 13% 77% 24%
Hunter
16% 8% 0%
10%
20%
30%
40%
50%
60%
70%
80%
SOURCE: CCRF and HVRF business surveys
The Central Coast Research Foundation
Economic Indicators ECONOMIC INDICATORS
After strong signs of recovery from the Global Financial Crisis (GFC) in late 2009 and early 2010, economic activity in the Central Coast was disappointing during the three quarters to March 2011. Subdued conditions were especially evident in the local labour market. Both the participation rate and employment numbers fell back to levels prevalent during the GFC. Consumer and business sentiment did little to give confidence for the future. However, residential building approvals, new passenger vehicle registrations and recent business trading looked positive.
In summary
The number of people employed in the Central Coast fell dramatically from an all-time peak in April 2010. The weakness in the local labour market was also apparent in the declining participation rate. It fell to a record low of 52.5 per cent in early 2011. In addition, the unemployment rate rose to 7.2 per cent in February 2011. In March 2011 the situation improved slightly. Both the local economy’s relatively high dependence on consumer spending and sentiment, which are currently weak, and a soaring Australian dollar, may partly explain the current weakness in the labour market. This is exacerbated because the Central Coast does not directly share in many of the benefits of the resources boom compared with other regions.
The labour force
Despite disappointing developments in the labour market, recent movements in residential building approvals and new passenger vehicle registrations in the Central Coast were relatively positive. Both indicators were encouraging signs for the future development of the economy. Expected consumer spending has, however, remained subdued since the GFC. This is consistent with the March business survey’s finding, that 50 per cent of businesses considered ‘sales and orders’ to be the main factor currently constraining their output, and with the climb in the nationwide savings rate. Other business indicators such as non-residential building approvals, new commercial vehicle registrations and expected capital expenditure were relatively weak. Despite slightly below average business sentiment, profitability returned to neutral levels in March 2011 and trading picked up strongly in the first quarter of the year.
Households and businesses
Expectations for consumer spending over the next 3 months remain weak and an obstacle to improvement in local economic conditions. Currently low employment numbers and possible inflationary pressures may further weigh on consumers’ spending behaviour. This is aggravated by the relatively high dependency of local businesses on consumer spending. Increasing profitability and trading of local businesses suggest that the local labour market is likely to show signs of recovery after the marked weakness during the previous year. As a consequence of seven interest rate increases since October 2009, and a possible further tightening of monetary policy, economic conditions may remain difficult for some industry sectors in the medium term.
Outlook
Employment (annual change) - 10.7% Unemployment rate
6.3%
Participation rate
52.9%
Residential building approvals (Dec 10) -0.6% Commercial motor vehicles (Mar 11)
-12.5%
The arrows and figures refer to the direction and magnitude of movements in the current period relative to the same period a year earlier. The Central Coast Research Foundation (ABN 65 082 304 514) PO Box 322, Newcastle NSW 2300, Australia Phone: 1800 000 237; Fax: (02) 1800 000 238; e-mail: [email protected]; internet: www.hvrf.com.au/ccrf
No. 35 Issued twice yearly ISSN 1322-025X
The information herein is believed to be reliable and accurate. However, no responsibility or liability for the contents, or any consequence of its use, will be accepted by the Central Coast Research Foundation or by the staff involved in its preparation. © The CCRF 2011 Apart from any use as permitted under the Copyright Act no part may be reproduced by any process without the permission of the publishers.
Central Coast Economic Indicators Employment
Number of employed persons – Central Coast
Number employed in the Central Coast, March 2011 Males: Females: Total:
70,000 61,000 131,000
After a strong increase in employment numbers, to an all-time high of 154,300 persons in April 2010, employment in the Central Coast fell dramatically during the last year. In February 2011 only 128,600 people were employed in the Central Coast. This number was only slightly higher than the low in mid-2009, which was a result of the downturn during the GFC. This downturn in the Central Coast labour market was not replicated in the Hunter, where the number of employed residents kept growing until December 2010 and suffered only a minor setback in early 2011. This regional difference demonstrates that, nationally, there are big differences between resource based economies and those based on domestic consumption.
Participation Participation rates, March 2011 Central Coast: NSW:
Participation rate Central Coast and NSW
52.9% 64.5%
In contrast to the relatively high and stable participation rate in the State, the participation rate in the Central Coast economy was generally both more volatile and lower. Low participation may be a result of regional characteristics of the Central Coast, with more elderly and retired people living in the Region compared to NSW. Looking at the cyclical movements, participation dropped dramatically during 2010, reflecting the downward trend in employment numbers. The recovery of conditions in early 2010 when the regional participation rate rebounded was therefore only a temporary phenomenon. This suggests an overall weakening in the Central Coast labour market. When examining participation in greater detail, it becomes apparent that the fall in the participation rate of women was most marked (45.9% in February 2011 compared to 56% in February 2010).
Unemployment Unemployment rates Unemployment rates, March 2011 Central Coast: NSW:
6.3% (Note the chart opposite shows 5.4% the unemployment rate on a 3 month moving average basis)
The unemployment rate in the Central Coast increased from 3.7 per cent in November 2010 to 6.3 per cent in March 2011. While this increase is not alarming in itself, it compounded the downward movement in the number of employed persons and the falling participation rate described above. Together this data paints a picture of a relatively weak labour market that most likely reflects a lack of business confidence and subdued consumer sentiment and spending. The weakness of the local labour market may also be related to long term structural issues such as a lack of suitable labour and a difficult access to public transport.
Page 2 March Quarter 2011
The Central Coast Research Foundation
Central Coast Economic Indicators Full time and part time employment by gender Numbers of part-time employed, March 2011 and March 2010 March 2011: March 2010:
Male part time 6,800 16,400
Employment by categories – Central Coast Number (Thousands)
Female part time 30,800 37,500
Consideration of employment by gender and full time and part time categories enables a more detailed examination of the origins of the recent fall in employment numbers. Historically, part time employment was generally higher for females compared to males. This is most likely related to the fact that a higher proportion of females (32% in 2006) than males (25% in 2006) undertake unpaid childcare. This is an ongoing structural issue common across many regions in Australia. The recent widening of the gap between the numbers of men and women in part time employment has, however, arisen due to a major fall in the numbers of men with part time jobs. While the number of male full time workers increased slightly, adjustments in the labour market were borne mainly by male and, to some extent, female part time workers.
Hours worked – over and under-employment As in previous periods, under-employment remained a problem in the Central Coast in the March quarter 2011. The problem, however, has become more severe. In general, part time employees were asked to work less hours than they would like to work. This phenomenon is known as under-employment and is now only slightly better than it was in March 2009. Although the number of part time workers fell significantly in the last year, there is still pressure on the remaining part time workers in the Central Coast. In contrast, since September 2010, full-time employees were working approximately as much as they would like, whereas historically they have been asked to work more than their desired hours. Taken together, these are further signs of the weakness of the labour market.
Rate of over and under-employment Difference between preferred/required hours and actual hours
Employment by industry – Annual changes Greatest gains to previous year average: Education and Training: Public Administration and Safety
Employment change by industry - Central Coast +3,620 jobs +2,523 jobs
Number of jobs (Year average to February 2011 compared to year average to February 2010)
The Central Coast economy experienced major shifts in industry employment shares in the year to February 2011. Job losses have been most severe in manufacturing, and wholesale trade. Like accommodation takings discussed below, manufacturing will, to some degree, have been affected by the current unfavourable exchange rate. Wholesale trade, on the other hand, is heavily dependent on consumer spending which currently has a weak outlook. There were also sectors with significant employment gains during the year to February 2011 as shown in the opposite chart. The job growth in education and training suggests the creation of knowledge and acquisition of skills in the Central Coast. Strengthening the education sector and other knowledge based industries may prove fruitful for regional growth and employment in the medium and long-term. An increased skill level of the local workforce is also likely to drive the participation rate back to normal levels.
The Central Coast Research Foundation
March Quarter 2011 Page 3
Central Coast Economic Indicators New passenger vehicle registrations Annual change in number, March quarter 2011 Central Coast: NSW:
Annual change in new passenger vehicle registrations
+5.6% +6.3%
Motor vehicles are important to residents in the Central Coast as public transport networks are limited and less efficient than in many other urbanised areas. Accordingly, developments in this indicator of new vehicle passenger registrations are a good barometer of the health of the local economy and consumer sentiment. Despite the current downturn in the local labour market, the increase in new passenger vehicle registrations was particularly strong in the Central Coast in the three quarters to March 2011. In December 2010 growth in new passenger vehicle registrations clearly outperformed the State-wide growth. However, registration numbers in the Central Coast were low during the GFC and total registration numbers in March 2011 were still slightly below levels seen before the crisis. Overall this indicator presents a relatively optimistic view of household spending.
Residential building approvals Annual change in real value, December quarter 2010 Central Coast: NSW:
Annual change in residential building approvals Real value
- 0.6% +6.2%
In contrast to the weakness of the local labour market and despite the tightening of monetary policy, residential building approvals present a positive picture of the Central Coast economy. In the September quarter 2010 annual change in the real value of building approvals was at its highest level since the December quarter 2000. The real value of building approvals almost doubled to approximately $82 million within one quarter and has surpassed pre-GFC levels. Despite annual change being slightly negative in December 2010, the real value of building approvals remained healthy at approximately $45 million, only slightly below the five-year average. Home buyers and builders’ grants may have been one reason for the strong rebound of residential building approvals during 2010 and conditions may begin to moderate as the effect of this stimulus passes through the economy.
Average residential sales prices Annual change in average residential sales prices Average residential sales price – all dwellings, current (nominal) value, September quarter 2010
Real Value
Central Coast: $382,500 (Note: the chart opposite shows NSW: $512,000 changes in inflation adjusted prices) On a yearly basis, changes in inflation adjusted residential sales prices were almost flat (+1%) in the Central Coast in September 2010. In contrast to a relatively moderate increase in local average residential sales prices, house prices in the State increased by approximately 17% in real value and 24% in nominal value in the March quarter 2010. When looking at real house prices in the local economy, rather than nominal prices at the State level, which the media tends to focus upon, concerns about rising house prices are not supported by the data for the Central Coast in the latter part of 2010. Further, a possible tightening of monetary policy may weigh on residential sales prices in the future.
Page 4 March Quarter 2011
The Central Coast Research Foundation
Central Coast Economic Indicators Consumer confidence and spending
Consumer confidence and spending – Central Coast Confidence: +1=most optimistic; -1=most pessimistic Spending: +1=increase; -1=decrease
March 2011 – residents’ expectations for the Central Coast economy over the next: 3 months: 12 months:
Better 19%; Same 54%; Worse 18% Better 30%; Same 39%; Worse 21%
The latest consumer confidence data available shows that, when looking forward three months, consumers were neutral regarding the Central Coast economy. While there was a strong shift towards optimism by consumers after the GFC, in the months to September 2009, there was a moderation in sentiment after March 2010. The data for consumers’ expectations about spending during the next three months is different. Since the GFC, consumers have not returned to their usual optimism about spending in the coming months. This is consistent with economists’ findings that saving rates have increased nationwide. In order to restore sustainable economic development, it remains crucial, that local consumer demand and sentiment return to normal levels.
Household saving ratio
Household Consumption – Household savings The Household Saving Ratio estimates the proportion of household disposable income that is not being expended through consumption. The adjacent chart demonstrates that since 2005 the average Australian household has been increasingly inclined to save their income. Attitudes towards appropriate debt levels have clearly changed with rising interest rates and increasing economic and financial uncertainty. This data is not available on a regional scale, but there is no evidence to suggest that Central Coast residents vary significantly from the national trend in this regard. As a consequence, while household incomes have risen in recent years and the currency has made many imported goods cheaper, increasing debt repayments and an increased propensity to save have led to mixed fortunes for consumptionrelated sectors.
Australia, 1960 to 2010 20% 15%
10% 5%
0% -5% JUN 60
JUN 70
JUN 80
JUN 90
JUN 00
JUN 10
SOURCE: ABS Cat. No. 5204.0
Non-residential building approvals
Non-residential building approvals Real value (1998/1999 dollar)
Annual change in real value, December quarter 2010 Central Coast: NSW:
-78.6% -63.4%
Real values of both private and public building approvals are shown for a five-year period in the opposite chart. The countercyclical stimulus by the public sector during the months April 2009 until December 2009 is clearly evident. In order to stimulate private investment and regional growth, investments were undertaken in key infrastructure categories. As intended by the economic stimulus plan, private investment and building approvals were indeed picking up in the first three quarters in 2010. However, they experienced a major setback in the December quarter 2010. In this quarter total building approvals were at their lowest level in the last five years. Whether real building activity arises from the shown approvals depends on several factors, one of which is future monetary policy.
The Central Coast Research Foundation
March Quarter 2011 Page 5
Central Coast Economic Indicators
New commercial vehicle registrations Annual change in number, March quarter 2011 Central Coast: NSW:
New commercial vehicle registrations Number
-12.5% -4.9%
Business investment in new vehicles is a subcategory of businesses’ capital expenditure. In the last quarter this indicator pointed steeply downward. Currently high fuel costs do not entirely explain the sharp drop and it is likely that generally subdued consumer and business sentiment are contributing. Overall, the level of new commercial vehicle registrations does not support an optimistic view of conditions in the Central Coast economy and business activity within it. However, in December 2010, the weakness in non-residential building approvals was offset to some degree by a relatively high number of 1,231 new commercial vehicle registrations. Improved business conditions and sentiment will be imperative for the development of both indicators in the future.
Expected capital expenditure
Central Coast businesses expected capital expenditure
Proportion of Central Coast businesses expecting their capital expenditure to increase over the next 12 months March 2010: March 2011:
29% 28%
Businesses capital expenditure usually increases when there is a positive long-term outlook for the Region. Accordingly, expectations about this expenditure are a strong indicator of sentiment. However, some care should be applied in its interpretation. For instance, in March 2009 businesses were most pessimistic about their expected capital expenditure in the next 12 months when the stock of commercial vehicles increased. Currently this indicator is slightly below its average of the last 10 years but remains clearly in positive territory. Therefore, this indicator predicts that unless unanticipated external shocks occur, capital expenditure by Central Coast businesses will be around average in the subsequent two quarters.
Business profitability and trading
33% 48%
(March 2010: (March 2010:
10 year average
Profitability and trading – Central Coast
Proportion of Central Coast businesses reporting good profitability and trading over the past 3 months Profitability: Trading:
Next 12 months +1 = most optimistic; -1 = most pessimistic
-1 = very poor; 0 = satisfactory; +1 = very good
33%) 42%)
Business profitability fell quite dramatically between September 2009 and September 2010. However, there has been a rebound to satisfactory levels in March 2011. The drop in profitability is likely to have been one of the main contributors to the reduction in employment numbers, which was described in the analysis of the local labour market. In the six months to March 2011, business profitability improved and during that time trading was excellent. Therefore, given developments in the labour market usually lag behind other developments in the economy, there may be some improvement in the labour market in the coming months.
Page 6 March Quarter 2011
The Central Coast Research Foundation
Central Coast Economic Indicators
Business expectations for the regional economy March 2011 – businesses’ expectations for the Central Coast economy over the next: 3 months: 12 months:
Businesses expectations for the regional economy – Central Coast +1 = most optimistic; -1 = most pessimistic
Better 22%; Same 48%; Worse 23% Better 36%; Same 37%; Worse 14%
Business expectations for the regional economy over the next 3 months returned to neutral levels after a strong recovery in mid to late 2009. Expectations for the 12 month compared to the 3 month time horizon are more positive. Overall, these indicators show falls in sentiment to levels that would have been regarded as low before the GFC. They reflect a nationwide fall in business sentiment after the strong rebound of sentiment from the lows experienced in March 2009. Sentiment in the Central Coast economy is now below its 10 year average for both businesses expectations for the next 3 months and for the next 12 months.
Main factor currently constraining output
Main factor currently constraining output
Percentage of businesses considering ‘sales and orders’ as the main factor currently constraining output March 2011: 50% March 2006: 36% The chart opposite shows that sales and orders were considered by most businesses to be the main factor currently constraining output compared to suitable labour and operating costs. This is consistent with both the upward trend in the nationwide savings rate and current low consumer confidence and expectations for spending. The decrease in sales and orders may result from several factors. These include generally uncertain economic conditions, which contribute to a higher consumer saving rate. A decline in disposable income, resulting from lower employment in the Central Coast and higher mortgage rates as a consequence of an increasing RBA cash rate, may be other reasons.
Accommodation takings Annual change in real takings, December quarter 2010
Real value takings – hotels / motels Annual Change
Central Coast: 0.5% NSW: 4.4% Like manufacturing, tourism is considered to be one of the industry sectors most affected by the soaring Australian dollar. The opposite chart shows that the real value of takings of hotels and motels in the Central Coast increased at a slower rate compared to State accommodation takings. The relatively strong rebound in the State may be due to a high proportion of domestic tourists not affected by exchange rate changes or due to lower price elasticities for tourism compared to goods and services from other industry sectors. Due to already high interest rates and a possible further tightening of monetary policy, the already negatively affected local tourism sector is not likely to boost local economic activity in the near future.
The Central Coast Research Foundation
March Quarter 2011 Page 7
Central Coast Economic Indicators Innovation Innovation includes the development of improved products, services and processes, the creation of new markets and the use of new products. It is an increasingly important driver underpinning the growth and vitality of economies and productivity advances throughout the world. The CCRF has conducted innovation surveys twice yearly since March 2009 and is now able to use this data to describe and understand some of the factors which are associated with innovative businesses in the Central Coast.
Introduction of new goods and services The introduction of new goods and services is a very important part of innovation, and has been measured by the CCRF in their regular surveys in the Hunter and the Central Coast. The results show that during most of 2009 to March 2011, over one-third of businesses in the two Regions have introduced new products and services during the last 12 months. There was no significant change in the proportion of innovating businesses in the Hunter over the time period, but in the Central Coast there was a decline in the March 2011 quarter. This may be a reflection of the currently subdued economy in the Region and the relatively low profitability being reported by businesses during much of the time period. Currently there are various initiatives in the Central Coast to boost business awareness of innovation and assist businesses to constantly improve their ways of operating, as well as their products and services. Given the increased importance of these issues when profitability is weak these initiatives may be one way of boosting economic activity.
Introduction of new goods and services in the last 12 months Proportion of businesses 50%
March to Sept 2009
Dec 09 and March 2010
June and Sept 2010
Dec 2010 and March 2011
40%
38%
37%
40%
34%
34%
34%
36%
30%
26%
20% 10% 0% Hunter
Central Coast
SOURCE: CCRF and HVRF business surveys
Innovation by industry sectors Collection of data over an extended time period leads to a rich data base that can be analysed in more detail. This analysis revealed that there are differences in the proportions of businesses innovating in the different industry sectors in the two Regions. In the Central Coast innovation in the goods producing sector which includes agriculture, manufacturing and mining was significantly higher than it was in the knowledge based and person based sectors. Industries in the goods producing sector in both Regions were also significantly more likely than industries in the other sectors to introduce products and services that were new to the world and to have sought a patent. Given the considerable threats that industries such as manufacturing face from fierce global competition with countries that have comparatively cheap labour, and the current threat posed by the high Australian dollar, this evidence of innovation within the sector is encouraging and vital.
Innovation by industry sectors, 2009 to March 2011 Proportion of businesses introducing new products and services Goods producing 50%
Person based service
Goods related service
Know ledge based service 42% 37%
41% 40%
36% 33%
33%
30%
29%
30% 20% 10% 0% Hunter
Central Coast
SOURCE: CCRF and HVRF business surveys
Degree of innovativeness The diversity in the scale and nature of innovation is one of its major characteristics, and is clear from this data concerning the degree of innovativeness of the new products and services introduced by businesses in the 12 months prior to the surveys. In both the Central Coast and the Hunter the proportion of businesses who indicated that their innovation was new to their firm only was far greater than those indicating that they had introduced more novel innovations. It was noteworthy however, that regardless of the degree of novelty, Central Coast businesses who had innovated in the last 12 months were more likely than those who had not, to have expectations for good to very good profitability during the next 12 months. The factors nominated by the highest proportions of Hunter and Central Coast businesses as very strong motivators for their introduction of new goods and services were: satisfying demand from existing clients, expanding your client base and improving profitability.
Page 8 March Quarter 2011
Degree of innovativeness Proportion of businesses who introduced new products and services New to the w orld
New to Australia
New to industry
New to firm only 72%
Central Coast
20% 11% 13% 77% 24%
Hunter
16% 8% 0%
10%
20%
30%
40%
50%
60%
70%
80%
SOURCE: CCRF and HVRF business surveys
The Central Coast Research Foundation
