Unemployment drops to 3.9%


Stuff reports: quote.

Unemployment has dropped to 3.9 per cent, the lowest level since the global financial crisis, causing the New Zealand dollar to surge.

On Tuesday Statistics New Zealand revealed that the seasonally adjusted unemployment rate was 3.9 per cent in the three months to September 30, down from 4.4 per cent at the end of June.

It is the lowest unemployment rate since June 2008, when unemployment was 3.8 per cent. end quote.

June 2008 was just before the GFC, of course, and unemployment, along with a lot of other nasty economic indicators, started to skyrocket after that. quote.

A survey of economists?had expected the unemployment rate would show no change. The New Zealand dollar jumped half a cent against the US dollar on the news, to be buying US67.4c, the highest level in around three months, as the odds of an interest rate cut from the Reserve Bank dissipate. end quote.

Just yesterday, there was talk of a further cut in interest rates, fuelled particularly by Adrian Orr. Things can change quickly in the field of economics, can’t they?

Grant Robertson, of course, was ecstatic.

So what is going on? How come there is a sharp drop in unemployment when there is low business confidence? The answer is in the detail.quote.

“While this quarter’s unemployment rate is outside market expectations, we know New Zealand has a small economy with a dynamic labour market, and large changes, both up and down, have happened before ? in late 2012 and 2015,” Statistics NZ spokesman Jason Attewell said. end quote.

So it could just be a seasonal fluctuation. Or, as he’s pointed out, these types of changes are not uncommon.

Then there is this: quote.

“We also know labour market measures tend to lag behind other economic indicators, which have shown strong and widespread growth in 2018. We’ve seen population growth in the regions, reports of more job ads, high levels of migration and tourism, growing retail sales, and rising exports.” end quote.

Business confidence indicators are practically instantaneous. They are a description of the feelings on the day. But hiring decisions take much longer to feed into the economic statistics. Just think how long it takes on average to fill a job vacancy. In my experience this can take anything from 1 to 6 months, depending on staff availability. If we assume an average of 3 months to fill a post, then hiring decisions made prior to June 2018 are reflected in the September 2018 unemployment figures. It is now November, so much of this data is actually 6 months old.

What’s more, when many of these hiring decisions were being made, this government had only been in power for 6 months, had only recently announced the oil and gas ban and had only recently formed many of the working groups.

So, what I am saying is that this data is still a hangover from the previous government, albeit one of the last ones, and in no way can it be attributed to the deft economic management of the CoL.

They’ll take it, of course… they will use it as a way to prove they are managing the economy soundly, when the truth is, we really do not know that yet.

It is also worth pointing out that the September quarter ended before the full effect of increasing oil prices was felt. The Auckland regional fuel tax was already in place during the September quarter, but international oil prices and the drop in the dollar were only just being felt when the reporting period ended. quote.

ASB chief economist Nick Tuffley said historically the unemployment survey was somewhat volatile, meaning there was some chance that part of the fall would reverse when the December quarter figures were announced in February.

“If we take [the figures] at face value, what is encouraging about it is it does fly in the face of what business confidence has been saying for the last year, which has been indicating businesses have been very circumspect full stop, but also very wary of hiring and investing in their own business,” Tuffley said.

“As yet we haven’t seen any material signs coming through yet that weaker business confidence is impacting on the broader economy.” end quote.

Think of the economy as a juggernaut, or a very large cruise ship. Once you apply the brakes, it takes quite a while for it to slow down. That is the period we are in now. In the same way that this government is still using the term ‘nine years of neglect’ to describe the actions of the previous government, so too must we recognise that the current economic performance is a product of the economic measures of the last 5 years or so. Things simply do not change overnight.

When the December quarter numbers come out in February, we may see a different story. The effect of fuel price increases and the falling dollar will be starting to bite. But even then, the changes may not be very dramatic. Like that juggernaut, it takes a while for even a completely incompetent government to slow a good economy down.