Jobs in Singapore grow with economy, for now

The Singapore economy has been recovering nicely, and jobs are being created. However, improvement in the unemployment rate and wage increases are likely to be muted in the face of continuing uncertainties over the sustainability of world economic growth. To sustain employment growth and employability over the longer term, Singaporeans will have to learn new skills as the country makes the transition to a service-based economy.

For the near term, the economy looks rosy enough. On 17 May, the Ministry of Trade and Industry reported that the Singapore economy grew 7.5 percent in the first quarter from a year earlier. It also raised its forecast for Singapore's economic growth for 2004 to between 5.5 and 7.5 percent. Non-oil domestic exports for April grew 15.1 percent year-on-year.

On the same day, the National Wages Council recommended that companies that are profitable should reward workers with wage increases. However, wage increases should be "moderate", and increases should lag behind productivity gains.

On 22 May, Acting Manpower Minister Ng Eng Hen said that 14,300 new jobs were created in the first quarter of this year, and he was hopeful that the following quarter would be just as good. "I'm optimistic that with continued growth, we'll continue to generate more jobs," said Ng at a lunch function.

However, he also warned that some companies would continue to shed jobs. Therefore, the unemployment rate, which was 4.5 percent in March, will only decline slightly. "I think we're expected to go down to 4 percent -- slightly below maybe -- at the end of the year," he said.

On the same day, at another occasion, National Trades Union Congress chief Lim Boon Heng said that despite the improving economy, a three percent wage increase "is quite fair this year". He said that a hike in fuel prices, instability in the Middle East and overheating in China may severely affect the world economy.

To justify the limited increase, he could have added the fact that Singapore workers are already relatively well-paid compared to their Asian counterparts.

According to the World Competitiveness Yearbook 2003, among workers in Hong Kong, Malaysia, Singapore, South Korea and Taiwan, Singapore workers were the second best-paid -- behind South Korea in manufacturing and behind Hong Kong in service and managerial staff. Singapore workers also worked fewer hours than their counterparts in the other four Asian countries.

Based on the above, Singapore has no particular competitive advantage in either manufacturing or services over its Asian neighbours. Nevertheless, Singapore has to make the transition toward a more service-based economy, in line with developed economies around the world.

As it is, according to data from the Ministry of Manpower, from 1993 to 2003, there was practically no net job growth in Singapore's manufacturing sector. The bulk of the half-a-million or so jobs created during that period were in services.

So Singapore workers will have to adjust to a new employment environment.

In the May issue of Productivity Digest, a publication from SPRING Singapore, in an article titled "Learn to Enhance Your Employability", Jaime Koh and Sharon Chang pointed out that there are actually more jobs than there are Singaporeans for these jobs. The problem, as they put it, is that "there must also be people equipped for these jobs. Otherwise, the result is structural unemployment".

According to the authors, there are two dimensions to the problem. One is regarding the level of qualification. Many of the new jobs require higher skills and qualifications. Although the polytechnics and universities in Singapore have been increasing their intakes, they are still not producing enough graduates. Jobs requiring diplomas are expected to face the largest shortfall.

The other dimension of the problem is that, with more jobs in services, Singapore workers will have to develop specific service skill sets and service mindsets.

"Besides their vaunted industry, they will need innovation," the authors wrote. "Besides solving problems, they will have to seek and create new value niches. They will be called upon to provide customised solutions, and to handle simultaneous and varied requests together. There will be less routine work, and characteristics such as interpersonal relationships, emotional quotient (EQ), rapport-building and mentoring will be given higher emphasis."

The Singapore government, quick as always, had already set up the Singapore Workforce Development Agency in September 2003 to help unemployed Singaporeans find jobs and upgrade workers' skills.

However, Koh and Chang wrote that Singapore also has to revamp its adult continuing education and training system to help keep workers employable.

"[O]n the part of the workers, it is critical that they understand the urgency of acquiring the relevant skills to move into the new jobs," they wrote. "Just as important too is their preparedness to take up the jobs they might not have considered in the past. Otherwise, Singapore will continue to see structural unemployment rise, even as the economy grows."

Singapore stocks down despite good 1Q results

Corporate first-quarter results in Singapore have been excellent, generally meeting or surpassing analysts' expectations. The Singapore stock market, however, has largely ignored the results and has turned decidedly bearish instead, focusing on negative factors elsewhere.

In the United States, following the strong job growth in March and April, recent economic indicators have reinforced the notion that the Federal Reserve is likely to raise interest rates soon, which may hurt stock prices.

On 14 May, the US Labor Department announced that the consumer price index rose 0.2 percent in April, but the core number, which excludes the volatile food and energy components, was up 0.3 percent. On the same day, the Commerce Department reported that business inventories rose 0.7 percent in March to a record US$1.205 trillion, the seventh straight monthly increase. Also on the same day, the Federal Reserve issued a report showing that industrial production in the US gained a larger-than-expected 0.8 percent in April while capacity utilization rose to 76.9 percent, its highest level since July 2001.

In China, inflation is also very apparent. Consumer prices in April were 3.8 percent higher than a year ago. Retail sales were also strong, up 13.2 percent. In an effort to cool down the economy, the Chinese government has ordered banks to hold more capital in reserve. So far, though, the government's efforts have achieved little in slowing down the economy. Economists fear that interest rates may eventually have to go up. That would put the whole economy at risk of a hard landing, and adversely affect other Asian economies as well.

Rising oil prices threaten to aggravate global inflation further. Last week, US light crude shot past US$41 a barrel. Strong global economic growth, especially in China, has led to strong demand for oil. This has put a strain on global oil supply. If oil prices stay high, it will affect economic growth around the world, especially in oil-dependent Asia.

All these negative news is weighing down the Singapore stock market even as companies report sparkling first-quarter results. Of the 147 companies that have reported first-quarter earnings yesterday, 134 were profitable while only 13 were in the red. The companies collectively earned $2.9 billion, 72.1 percent more than they did a year ago. Most analysts reported that the results have generally met or exceeded their expectations.

The three big local banks -- generally regarded as proxies for the overall Singapore economy -- did well, with all three reporting double-digit growth. So did logistics and transportation companies, with Neptune Orient Lines reporting a stunning 7-fold net profit jump for the first quarter.

Technology stocks also generally did well. Chartered Semiconductor Manufacturing surprised analysts by posting a net profit of US$1.9 million in the first quarter, after 12 straight quarters of losses. However, Venture Corp, disappointed analysts with only a 10.7 percent earnings growth for the first quarter. The hard disk drive sector also has not done well.

Property stocks saw mixed first quarter performances. Allgreen Properties, for example, saw its first-quarter net profit fall 12.7 percent to $19.4 million, but City Developments managed a 5 percent gain with a net profit of $40 million.

Despite the generally good results, however, the Straits Times Index fell 4.8 percent last week to close at 1,754.96 on Friday, weighed down by interest rate fears, China's overheating economy and rising oil prices. As a result, the market is now marginally down for the year to date.

Similar concerns afflict most other major bourses around the world. For example, in the United States, the Standard & Poor's 500 fell 0.3 percent last week to close at 1,095.70. It was its third consecutive week of losses. It is now down 1.5 percent since the beginning of the year.

In view of the rising inflation, many economists have compared the current conditions to that of 1994, when the Federal Reserve raised interest rates several times to ward off inflation. In 1994, the tightening cycle began with the federal funds rate at 3 percent and ended with the target rate at 6 percent after the February 1995 meeting. Stock markets around the world fell in reaction to the interest rate hikes. If the Federal Reserve does the same thing again in 2004, many analysts fear that global stock markets would also be badly hit again.

However, there are some differences between the present situation and 1994.

First of all, job growth has been weak. On a year-to-year basis, non-farm payrolls have risen only 0.9 percent in April. In contrast, back in February 1994, non-farm payrolls were 2.5 percent higher than a year earlier.

Secondly, easy monetary policy for the past few years means that households now are in much greater debt than in 1994. Despite low interest rates, the financial obligations ratio -- that is, the ratio of household debt, rent, auto lease, homeowners' insurance, and property tax payments to disposable income -- are near historical highs. A large increase in interest rates this time would almost certainly choke off consumer spending.

So, as Federal Reserve chairman Alan Greenspan has said, interest rate increases this time round are likely to be "measured".

However, there is another difference between the present situation and 1994. I am referring here to the stock market.

Back in 1994, most markets, especially in Asia, had spent the previous year surging, oblivious to the impending interest rate increases. This time, in 2004, even before the start of interest rate hikes, stock markets are already falling.

Such caution reflects a market that is skeptical. This is not typical of a market top. Such skepticism actually makes it less likely that the market is overvalued or overbought. It is also possible that the market may already have discounted much of the impending interest rate hikes.

What this means is that the current pull-back may just be a temporary correction. In other words, it is a wall of worry that the bull market has to climb over before continuing its run.

Admittedly, mine is a relatively optimistic view. Many other analysts suspect that this may be the start of a bear market. However, I am far from alone in my view. For example, DBS Vickers research head Timothy Wong told The Business Times recently that there is still upside potential for stocks. He thinks that the market has yet to price in all the growth "largely because it doesn't believe the numbers at this moment".

Regardless of the upside potential, though, I think investors need to prepare for a rough ride over the next few weeks. I expect the current correction to be a major one, which may take the Straits Times Index below 1,700.

Nimble traders may still have time to sell. Longer-term investors should probably hold on to their shares and wait for the subsequent rally.

Good outlook for Singapore manufacturing and electronics

The recovery of Singapore's manufacturing sector is poised to continue, with electronics manufacturing leading the charge.

The purchasing managers' index (PMI) compiled by the Singapore Institute of Purchasing & Materials Management hit 55.2 in April, its highest level since November 2002. The electronics PMI was 55.9, helped by the electronics new orders and new export orders sub-indices, which rose strongly to 59.4 and 60.6 respectively.

A survey conducted by the Economic Development Board (EDB) in March and April also found similar optimism. A weighted 44 percent of manufacturers polled by the EDB projected a stronger business outlook in the six months to September, while 5 per cent expected a deterioration (the survey results were weighted by companies' contribution to employment and value added). The net positive response is 39 percent, an improvement over the 20 per cent recorded in the previous quarter.

Electronics manufacturers were even more optimistic, with a net weighted balance of 67 percent of them expecting a "robust business situation" in the next six months.

"Riding on the global electronics recovery, the electronics cluster projects a higher output level in the second quarter of 2004," the EDB said. "The semiconductor segment expects to increase production to meet the rising export demand. Within the infocomms and consumer electronics sector, higher outputs of mobile phones and computers are expected."

The semiconductor industry has been particularly strong. The European Semiconductor Industry Association (ESIA) recently reported that global chip sales in March hit US$16.27 billion, up 32.3 percent year-on-year. The ESIA said semiconductor shipments should grow by 25 percent this year.

Operations by wafer fabrication companies in Singapore, such as Chartered Semiconductor Manufacturing and UMCi, the Singapore subsidiary of Taiwan giant United Microelectronics Corp (UMC), are also set to rise strongly. UMCi's president, Chris Chi, has said that the company aims to boost production at its Singapore plant this year from 2,000 wafers a month to more than 10,000.

With the strong growth in semiconductors, semiconductor equipment sales are expected to grow strongly as well. Singapore's market for semicon equipment, worth US$810 million last year, is forecasted to grow 70 per cent this year to US$1.38 billion, the second-highest in the world after South Korea.

"We expect to see Singapore's demand peak to US$1.73 billion by 2005, before settling down to US$1.62 billion in 2006," said Stanley Myers, president and chief executive of the Semiconductor Equipment and Materials International (Semi), at a semiconductor exposition this week. "Singapore's market for semicon equipment is growing just below South Korea's, which saw demand jump 88 per cent to US$3.2 billion in 2003."

The optimism on investment extends to manufacturing in general. According to the EDB survey, most manufacturers are planning to invest in plant and machinery in the next 12 months (April 2004 through March 2005). The EDB reported that "a weighted 31 per cent [of manufacturers] project higher level of capital expenditure. This is the highest level achieved since the second quarter 2003 survey, when it was at a weighted 16 per cent."

US data also supports the optimistic outlook in Singapore. The survey by the Institute for Supply Management in the US showed that its manufacturing index for April was 62.4, the twelfth consecutive month that the index was above 50, the level that signals growth.

The US Commerce Department reported on 4 May that factories saw orders rise 4.3 percent in March compared to the previous month, the biggest increase since July 2002. Non-defence manufacturing orders were up 4.6 percent, the largest increase since March 1992.

However, the stock market provides a note of caution. While the overall stock market has done well -- based on yesterday's close of 1,866.61, the Straits Times Index has risen 5.8 percent so far this year -- the manufacturing sector has not kept pace. Manufacturing stocks have collectively fallen about one percent since the beginning of the year, while electronics stocks have fallen by 5.7 percent.

Having said that, manufacturing and electronics stocks were overdue for a breather anyway, having gained almost 50 percent last year. The slight fall since the beginning of the year may not be significant.

Probably of greater concern is whether demand from the US can be sustained once the effects of monetary and fiscal stimuli applied over the past few years dissipate. With rising commodity prices, especially for oil, many expect the Federal Reserve to start raising interest rates before the end of the year. With the US economy burdened with record levels of debt, the loss of monetary lubrication could be a real threat to the ongoing economic recovery.

For the rest of this year, though, the recovery is likely to keep going, especially for Singapore's electronics manufacturers.