No. 25 Issued biannually

CR

ICO

S Pr

ovid

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0109

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National economy - rebound in growth • Strong growth in December after September contraction; broad based improvement driven by household spending, public

investment and net exports• Growth in world markets and higher commodity prices improved terms of trade; agriculture and mining strong performers• Household consumption stronger but evidence of continued weakness in non-mining private capital expenditure; low inflation

and slow wage growth continues• Fastest house price rises in Sydney and Melbourne, supported by economic conditions and population growth

Upper Hunter economy - positive signs• Employment steady and falling unemployment, Upper Hunter unemployment rate below Hunter overall and NSW rate • Housing market remains weak relative to boom-time highs with further falls in median house prices. New housing approvals

steady at levels below the five-year average• A sustained improvement in business confidence, and rising performance and planned investment in December. Signs of a

turn-around in previously subdued consumer spending intentions• Renewed regional confidence, with business and household confidence in the Hunter economy improving in December

Upper Hunter RegionEconomic Indicators

Australian coal prices

MAR 2016 MAR 2017

$86.37 $55.92

THERMAL USDper metric

tonne 4.0% JOBS

Unemployment rateUpper Hunter

DEC 2015

Upper Hunter

8.6%

DEC 2016

Average price residential dwellings

Upper Hunter

DEC QTR 2016$328,521

DEC QTR 2015$345,951

New house approvals Upper Hunter

8220152016

89

$Consumers

financial circumstances

0.24 0.18

++++ +1 =better

-1 =worse

DEC 2015DEC 2016

$$$+1 =

better-1 =worse

Businessconfidence

0.23 0.16DEC

2015DEC

2016$

12 month expectation

** Upper Hunter Region includes Singleton, Muswellbrook and Upper Hunter Shire Local Government Areas (LGAs)* Hunter Balance includes Upper Hunter Region plus Cessnock, Maitland, Port Stephens and Dungog LGAs

December 2016

newcastle.edu.au/hrfc

Page 2 Dec 2016 newcastle.edu.au/hrfc

In the second half of 2016, the ABS Labour Force survey indicates that employment numbers remain stable in the Hunter Balance* (although the series is volatile) following a rapid rise in persons employed since mid-2015. Total employment is around 4 per cent below the peak of late 2013. Overall both part-time and full-time employment stayed relatively stable over 2016, however male full-time employment declined by 3 per cent while part-time employment grew by 14 per cent (3-month moving average). The reverse was true for females with full-time employment opportunities growing slightly and part-time declining.

Sustained higher employment numbers may reflect an underlyingshift into more labour intensive service industries, and the recentuptick in commodity prices. A declining Australian dollar hasstimulated export growth in services, agriculture and in-boundtourism nationally. Expected growth in these sectors reinforceopportunities for the region’s diversification in line with global trends.

Australia’s economy grew a strong 1.1 per cent in the December quarter, more than offsetting a 0.5 per cent September quarter contraction in GDP. Rising household spending and public investment in infrastructure and defence were major contributors, along with net exports and dwelling investment. An improving global economy has driven commodity prices, boosting Australia’s terms of trade and national income.

The benefits of increased mining production and resource exports were apparent in this quarter, although much will depend on the global outlook and that of China in particular. The agricultural industry was the biggest contributor to annual GDP growth in 2016, and farm production is forecast to reach a record $63.8 billion in 2016–17. The depreciation of the Australian dollar, good weather and rising world prices have been key factors in the sector’s strong performance, underpinned by growth in global demand for food, and improved farm productivity.

Employment growth in the Hunter Balance* has been accompanied by a continued fall in the unemployment rate, with job creation outstripping growth in the total labour force. The Upper Hunter unemployment rate fell three percentage points over 2016 and currently the Upper Hunter rate (4%) is below the rate for the Hunter (5.4%) and NSW (5.1%). Muswellbrook’s unemployment rate has experienced a particularly rapid decline in 2016 and is now 5.6 per cent, well below the 12.4 per cent recorded a year prior. Unemployment rates are 3.4 per cent in Singleton and 3 per cent in the Upper Hunter local government area (LGA).

Falls in the participation rate may have contributed to the outcome, with the participation rate in the Hunter Balance* low, at 60 per cent, and below the Hunter rate of 63 per cent. Continued positive business hiring intentions suggest prospects for further recovery in 2017.

EMPLOYMENT 3-month moving average

UNEMPLOYMENT RATES 4-quarter moving average

COMMODITIES AND TRADE

Hunter balance* (LHS)

NSW (RHS)

100

110

120

130

140

JanJanJanJanJanJanJan2017201620152014201320122011

Source: ABS Labour Force Statistics; HRF Centre

3,000

3,600

4,200

3,300

3,900

‘000‘000

0

2

4

6

8

10

Upper Hunter

Hunter

NSW

DecDecDecDecDecDecDec2010 20152014201320122011 2016

Source: Dept. of Employment, SALM; HRF Centre

%

70

90

110

130

150

170

190Commodity prices (A$)

Terms of trade(seasonally adjusted)

Dec2006

Dec2010

Dec2012

Dec2014

Dec2008

Dec2016

Source: Reserve Bank of Australia; ABS

National economyrebound in growth

Labour marketrecovery continues

Unemploymentfalling

newcastle.edu.au/hrfc Page 3 Dec 2016

The dynamics created by decreased mining sector activity, resulting in reduced demand and an over-supply of housing stock, are still at play within the Upper Hunter region. Median house prices continued to fall in the Upper Hunter in 2016. Prices fell by 15 per cent in Muswellbrook, 2 per cent in Singleton and 10 per cent in the Upper Hunter LGA in the year to December 2016. This compares to an overall growth in Hunter median house prices of 7 per cent, and 8 per cent growth in the Newcastle LGA in 2016.

Across the Upper Hunter region median house prices have exhibited volatility but have generally been falling since mid 2015. In Singleton the rate of decline in house prices slowed in 2016, median house prices had fallen 6 per cent in 2015, while there was a small increase in the 2015 rate of decline in the Upper Hunter LGA. House price falls however accelerated in Muswellbrook in 2016, having fallen by only 4 per cent in 2015.

200

300

400

500

600

Upper Hunter

Muswellbrook

SingletonNewcastle

DecDecDecDecDecDec

$‘000

Source: HRF Centre; REINSW201620152011 2012 2013 2014

MEDIAN HOUSE PRICES Residential marketdownward pressure continues

In the second half of 2016 numbers of residential housing approvals (new houses), a leading indicator of residential construction, steadied at a level well below long-term averages. Residential approvals in the Upper Hunter declined sharply from late 2013 to late 2015, the annualised number of approvals in December 2015 was approximately a quarter of the figure in December 2013, and have remained at this level over the year. The total value of planned residential investment fell by around 70 per cent, from a peak in mid-2013 to mid-2015, and values have also plateaued at the lower level in 2016.

In contrast growth of new housing approvals in the Hunter overall outpaced the state in 2016. The value of planned non-residential investment in the Upper Hunter did not experience as sharp a decline as residential investment from late 2013, but values of both public and private non-residential investment continued to decline this year, and are well below the region’s five-year average.

0

700

1,400

2,100

2,800

3,500

DecDecDecDecDecDecDec

Upper Hunter** (LHS)

Hunter(RHS)

0

80

160

240

320

400

2010 20152014201320122011 2016Source: ABS Building Approvals; HRF Centre

NEW HOUSING APPROVALS UPPER HUNTER AND HUNTER Number annualised

Housing investmentplateau at lower level

Short-term spending intentions and expected financial circumstances of Upper Hunter households continued to improve in December 2016, with short-term financial circumstance expectations now well above the five-year average for December. Expected financial circumstances in 12 months, a leading indicator of consumer behaviour, trended upward in 2016, although the measure has not yet returned to its long-term December average. Spending over the previous three months also improved in 2016 but remains below its long-term average.

Nationally household consumption was solid in December and a major contributor to the strong GDP result, although household savings ratios had declined. In the Upper Hunter ongoing concerns about job security and falling house prices have understandably constrained consumer confidence. However, if future spending intentions remain approximately in line with historical levels, consumption will likely continue to improve in the Upper Hunter in 2017.

HOUSEHOLD FINANCE AND SPENDING <0 = worsening and >0 = improving

-0.2

-0.1

0

0.1

0.2

0.3

0.4 Financial circumstances (12 months)

Consumer spending (last 3 months)

DecDecDecDecDecDecDecDec20162015201420132012201120102009

Source: HRF Centre’s Upper Hunter Pulse Household Surveys

Consumer demandturning point?

Short-term and long-term measures of business confidence (average expectations of employment, profitability and trading) improved in December 2016. Although business confidence remains below the December 2011 high, confidence has been trending upward since December 2014. Planned investment (capital expenditure) by Upper Hunter businesses has also been rising from a low in December 2013, as have employment intentions, both now slightly above their five-year average.

Business profits (last 3 months) were marginally positive in December 2016, with the share of businesses recording profitability as good or very good now outnumbering those recording profitability as poor or very poor, a reversal of trend since mid-2013. Forward orders over the last three months also improved significantly above the lows of December 2014. While sales and orders remain the major constraint on output, this was less of a constraint in 2016 than in 2015 or 2014.

There has been increasing focus on the need for greater diversification to increase the Upper Hunter’s resilience and provide a buffer to the cyclical nature of the resources cycle. The HRF Centre’s Business Survey has monitored the level of dependence on the mining industry of non-mining sectors of the Upper Hunter annually since 2013. Overall mining dependence has not greatly changed over the period. Agriculture has had consistently low levels of dependence on mining while property and business services and accommodation, restaurants and cafes started the period relatively mining dependent compared to the average.

There have been greater reductions in mining dependence amongst businesses in the accommodation, cafes and restaurant sector and property and business services sectors over the period. The stated dependence on mining of businesses in the retail sector has not reduced over the period. Upper Hunter diversification may have benefited from a stronger agricultural sector and regional tourism associated with the lower Australian dollar.

0

0.05

0.10

0.15

0.20

0.25

0.30

0.35Business confidence (next 12 months)

Capital Expenditure (next 12 months)

Dec20162015201420132012201120102009

Source: HRF Centre’s Upper Hunter Pulse Business Surveys

DecDecDecDecDec DecDec

1

2

3

42016201520142013

Retail trade

Construction

Property &

business servicesAgriculture

Accommodation

cafés, restaurants Other

Total

Source: HRF Centre’s Upper Hunter Pulse Business Surveys

Alot

Notatall

BUSINESS OUTLOOK AND CONFIDENCE <0 = worsening and >0 = improving

UPPER HUNTER BUSINESS DEPENDENCE ON MINING Industry average scores

Business outlookimproving

Upper Hunter mining dependence

Upper Hunter residents’ expectations for the Hunter economy in the next three months were positive on balance, recording their best reading since 2005. Longer-term expectations of the regional economy were also positive and the strongest since late 2010, during the mining investment boom. Likewise the proportion of the region’s business owners reporting that the local economy would improve in the short and long-term jumped in December, with a reversal of recent low or negative short-term readings since mid-2013 and asignificantly stronger 12-month outlook than the last three years.

It is likely that the strengthening of the region’s labour market, recent uptick in commodity prices and strong performance of agriculture are supporting renewed optimism. There is still significant downside risk from volatility in global commodity markets, and planned residential and non-residential construction activity remains weak. Positive forward expectations of consumer spending may help to improve consumer demand given low interest rates continue.

12-MONTH REGIONAL OUTLOOK <0 = worsening and >0 = improving

-0.4

-0.2

0.0

0.2

0.4

0.6

Regional outlook (household)

Regional outlook (business)

DecDecDecDecDecDecDec2010 20152014201320122011 2016Source: HRF Centre’s Upper Hunter Pulse Surveys

newcastle.edu.au/hrfcThe 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 Hunter Research Foundation Centre or by the staff involved in its preparation. © HRFC 2017: Apart from any use as permitted under the Copyright Act no part may be reproduced by any process without the permission of the publishers.

Regional outlookoptimistic