SOLID FRAMEWORK: Construction activity appears to have helped underpin jobs and consumption within the region. Photo: Louie DouvisBusiness confidence in the Hunter economy is back to a boom-time high, according to the HRF Centre’s latest Hunter Region Economic Indicators.Our business confidence measure – a composite of profitability, trading volume and hiring intentions – reached a decade high for the September quarter. Capital expenditure intentions are well above their five-year average, as are forward orders taken by businesses in the three months to September.High levels of business confidence, sustained since March 2016, are reflecting positive hiring intentions and expectations of higher trading volumes, profitability and forward orders.
National business conditions are also at a decade high.
National trends that are likely to play a role in the region include the strong housing market and a construction boom. Low interest rates and the low dollar are likely to be affecting regional businesses. A pick-up in advanced economies will also play a part for businesses that are exporting or part of a global supply chain. It is likely that the rally in coal prices is having a greater influence in the region than the nation. Public investment is also providing important stimulus in the region and the nation.
Another positive indicator is improvement in the Hunter labour market. The Hunter has had stronger growth in full-time jobs (7.4 per cent) than NSW (4.3 per cent) over the year to September. The most recent quarter, however, shows a loss of full-time employment and a growth of part-time employment within the region.
Household expectations of personal finances over the next 12 months strengthened in September, moving well above the five-year average. Reported household spending over the previous three months climbed as well. However, the spending reported by Hunter consumers remains cautious. This conservatism mirrors the national trend, and contrasts with the sustained upward trend in business performance.
The surge in the region’s housing market is likely to have contributed to the growth in confidence. Median house prices have risen by 30 per cent over the past five years. However, in the September quarter, the Hunter’s median house price fell by 4.1 per cent. Falls in median house prices were reported in all Hunter LGAs bar Muswellbrook, which appears to be in a post-decline recovery phase.
There is local evidence that the construction boom may be past its peak. New housing construction approvals fell by 7 per cent between September 2016 and September 2017, compared to a 12 per cent fall for NSW as a whole.
Despite softness in the housing market, will renewed confidence and business buoyancy improve the region’s 2018 economic outlook?Household debt, underemployment and the rising cost of essentials all pose challenges. While declines in house prices are good news for first home buyers, theymight adversely affect the economy. Rising house prices create wealth effects and construction activity that appear to have underpinned jobs and consumption in the region. A weakening of these factors may stymie regional economic activity in the coming year.
On the upside, one in four Hunter businesses indicated in September that they intend to increase employment for this quarter. Further tightening of the labour market may help to lift wage growth, spurring increased spending in 2018.
Dr Anthea Bill, Lead Economist, HRF Centrenewcastle.edu.au/hrfc