On the rise: The stat that can sink govts
Unemployment lift likely just the start, warn economists
Economists believe the strong jobs market has peaked and expect to see unemployment on the rise in new data due at 10.45am today. By historical standards the numbers will still look good — unemployment is tipped to rise from 4.2 per cent to 4.3 or 4.4 per cent in the second quarter.
By comparison, New Zealand’s unemployment rates hit 10 per cent in the 1990s and 6.7 per cent as recently as 2012.
The labour market has tightened steadily since then, falling to a low of just 4 per cent in September last year.
But economists now say it has been as low as it will go in this economic cycle. They are picking the small rise is just the start of a trend which will see the jobs market weaken over coming months.
“We expect the overall tenor of the labour market data to be consistent with full employment but we also think that it will provide corroborating evidence that the trough in the unemployment rate is now behind us,” says BNZ chief economist Stephen Toplis.
While still “comfortably within the RBNZ’s range of ‘maximum sustainable employment’ . . . it is the direction of movement that is concerning,” says ANZ chief economist Sharon Zollner.
Adding to the concern is “the lack of any sign that domestic growth is likely to recover sharply from here,” she says.
Unemployment is the most brutal of economic statistics that the experts dissect. It’s the one that can sink governments. Unlike inflation or GDP, it doesn’t spread the pain across the population. If your number’s up then you bear the disproportionate brunt of an economic downturn.
As US President Harry Truman famously said: “A recession is when your neighbour loses his job, a depression is when you lose yours”.
Long-term unemployment also brings with it a raft of other economic and social problems.
It means the Government takes less money in taxes, pays out more on welfare and the increased demand for jobs puts downward pressure on wages.
Economists believe there may already be more “slack” in the jobs markets than top line numbers indicate.
“There is mounting evidence that the New Zealand jobs market is softening, reflecting the business-led nature of the recent growth slowdown,” Westpac senior economist Michael Gordon says.
“Business confidence surveys show a drop in hiring intentions, job ads are down on a year ago, and the share of people receiving the jobseeker benefit has risen further.”
But it isn’t clear how much of that will be evident in today’s numbers.
In fact there are likely to be some conflicting numbers in the data with a rise in both employment, unemployment and wages, Gordon says.
“Given the potential for mixed signals, we recommend focusing on the unemployment rate, which tends to be more stable from quarter to quarter.”
BNZ’s Toplis echoes concerns about weakness in job ads, reduced employment intentions and an increase in unemployment benefit payments.
But he is picking no rise in employment figures.
“We are now forecasting employment growth of just 0.3 per cent in the June quarter. If we are right this would mean almost no cumulative growth in employment over the last three quarters,” he says.
As long as unemployment numbers are tracking below 5 per cent there is no need to panic — but the lack of job creation is a trend the Government should be paying close attention to.