Brian Gaynor: Population soars as economy surges

Migrants have been the big contributors to NZ's growing population - 69,100 of them in the latest 12 months. Picture / Greg Bowker

Are migrants following NZ’s boom, or creating it?

The New Zealand economy is booming, but this strength is surprising given the depressed state of the dairy industry, the country's major export earner.

A number of recently released statistics, including the latest population and employment data, partly explain the strong economic expansion. Economic growth has also been fuelled by the net wealth effect - mainly the increase in total household wealth from $807 billion to more than $1,150b since 2008.

The strong residential property market has boosted individual wealth and confidence.

Fletcher Building's profit announcement this week was further confirmation of the strength of the building sector, and investors' response to the result indicated that they expect more to come.

The table shows that New Zealand's population grew by an impressive 2.1 per cent in the June 2016 year, compared with annual increases of less than 1.0 per cent from 2011 to 2013.

The 2.1 per cent growth rate is our highest in over 25 years and compares with an average rate of only 1.2 per cent over this period. Australia has annual population growth of only 1.4 per cent at present.

Population growth has two components: natural increase and net migration.

The natural increase - the difference between births and deaths - has slowed from 36,200 in the June 2010 year to just 28,200 in the latest year. Only three of the past 25 years have had a lower natural population increase.

The main reason is our declining birth rate, particularly for women in the younger age group. For example:

• The number of births for mothers in the 15-to-19 age group has declined from 5862 in 1981 to only 2562 in the latest year

• The number of births for mothers in their 20s has fallen from 34,617 in 1987 to 25,661 in the June 2016 year

• Meanwhile, women in their 30s had 28,248 children last year compared with 10,000-11,000 in the early 1980s

• Women aged 40 and over had 2406 children in the June 2016 year, compared with less than 500 a year before 1988.

Women are having their children later, and in smaller numbers, and the country's population growth would have been only 0.6 per cent in the June 2016 year if we had zero net migration.

Consequently, the main contributor to the strong population growth has been net migration of 58,300 in 2015 and 69,100 in the latest 12 months.

This begs the question: have migrants come to New Zealand because of our buoyant economy, particularly the robust job market, or have they been the catalyst for the country's strong employment growth, especially job creation in residential construction?

First, one of the most significant features of the net migration number for the year to June is that 54.2 per cent of these individuals were in the 20-34 age group, a high percentage compared with the past. In 2003, an earlier net migration peak, only 36.7 per cent of net migrants were in the 20-34 group.

This is good news as far as the country's birth rate is concerned, particularly as there is a relatively even mix of males and female migrants in the 25-34 group. By contrast, males dominate the other migration age groups.

The flip side to this is that the 20-34 age group is relatively mobile and can easily leave New Zealand when the economy slows.

Visa information indicates that a large number of new migrants have come to New Zealand to study or for jobs. There has been a decline in the number of migrants coming as residents only.

The experience in other countries is that migrants chase employment opportunities. There is little evidence to suggest that they create these opportunities, at least in the short term.

New Zealand is experiencing tourism and construction booms and these sectors are attracting migrants. In addition, New Zealanders living offshore have been attracted home because of increased job opportunities.

Fletcher Building chief executive Mark Adamson confirmed this at his post-results briefing when he said the company continues to experience labour shortages.

How long will it be before the female labour force participation rate is higher than the male participation rate?

The figures on the right-hand side of the table, which are from the Household Labour Force Survey (HLFS), show there has been a substantial increase in employment numbers in recent years although the percentage increase between 2015 and 2016 is exaggerated because Statistics New Zealand has changed its measurement methodology.

Nevertheless, the unemployment rate has fallen from 5.5 per cent to 5.1 per cent over the past 12 months and these two figures are comparable as they have the same measurement base. Unemployment had a recent peak of 6.7 per cent in 2013.

New Zealand's 5.1 per cent unemployment rate compares with the OECD's average of 6.3 per cent and Australia's 5.8 per cent.

Statistics NZ's Quarterly Employment Survey (QES) showed that the number of jobs increased by 3.1 per cent in the June year rather than the 4.5 per cent growth rate in the less reliable HLFS survey.

The following sectors made the largest contribution to the QES' job creation for the twelve months to June 2016:

• Accommodation and food services created 14,000 additional jobs, up 11.0 per cent

• Construction had 10,000 more employees, a 6.8 per cent increase

• Healthcare and social services added 9100 new jobs, up 4.1 per cent

• Professional, scientific, technical, administrative and support services created 9100 new employment opportunities, a 3.6 per cent rise.

There is a strong relationship between New Zealand's birth rate, natural population increase and the employment market.

Over the past 30 years, the labour force participation rate for females in the 15-to-24 age group has declined dramatically as more and more undertake post-secondary education.

However, female labour participation in the 25-to-29 age group has soared from 60.3 per cent to 73.9 per cent since the early 1980s, from 63.1 per cent to 76.6 per cent in the 30-34 age group and from 72.6 per cent to 78.4 per cent in the 35-35 group. This is because women are better educated, have student loans to repay and young couples continue to work to buy their first home.

The other interesting statistic is that the male labour force participation rate is declining in both the 25-29 and 30-34 age groups. This highlights a major social trend where men stay at home and look after the children while more women have become the major breadwinner.

In light of this, how long will it be before the female labour force participation rate is higher than the male participation rate?

The only certainty is that booms don't last forever.

The other point worth noting is that, because of our declining birth rate, New Zealand needs a net migration inflow of 20,000 or more to achieve a population growth rate of at least 1.0 per cent per annum.

It is difficult to predict how long the current economic boom will last, but it is highly dependent on tourism and the building sector. As long as these two industries sustain momentum, then the country will continue to attract migrants, which will also boost economic activity.

However, when tourism and construction slow, some of the young and mobile labour force will leave New Zealand and exacerbate the economic slowdown. There is little indication of a slowdown at present, although there is always the possibility of a "Black Swan" or unexpected event.

The only certainty is that booms don't last forever.

The New Zealand economy is cyclical and there will be a downturn in the future. The extent of this downturn will be highly dependent on the length and future strength of the current boom.