By Bernard Hickey
Statistics New Zealand has reported there were 23,000 jobs lost in the December quarter, but the unemployment rate fell to 6.9% from 7.3% in the September quarter because of a big fall in the participation rate.
The unemployment rate was better than the economists' consensus forecast for a rate of around 7.1%, but the 1.0% jobs loss was worse than the 0.1-0.4% employment increase expected. The participation rate fall of 1.2 percentage points to 67.2% was worse than economists' expectations for a rate of around 68.2%. This was a record fall in the participation rate, although some economists were sceptical about the figures.
The New Zealand dollar dropped to 83.8 USc from 84.3 USc on the figures. Wholesale interest rates also fell slightly on reduced expectations for future interest rates because of a weaker economy.
“We're seeing fewer people working and looking for work, and more people outside the labour force. More younger people are solely in study and more older people are entering retirement,” Statistics NZ's industry and labour statistics manager Diane Ramsay said.
She said the fall in employment was in part-time employment, while full-time employment rose slightly over the quarter. The number of unemployed people fell 10,000 over the quarter.
Statistics NZ said the number of people not in the labour force rose significantly over the quarter, with increases for both males and females. "Over the year to the December 2012 quarter, more people in the older age groups were not in the labour force. This was partly due to an ageing population," it said.
Here's more from Statistics NZ:
Within part-time employment, there were annual decreases in the education and training, and the agriculture, forestry, and fishing industries – down 8,900 and 6,400, respectively. For total employment the manufacturing industry had an annual fall – down 17,200.
During the December 2012 quarter, the NEET (not in employment, education or training) rate for youth (aged 15–24) increased 0.8 percentage points, to 14.2 percent. The youth NEET rate has been increasing since the June 2012 quarter. The female youth NEET rate rose for the fifth consecutive quarter – up 1.6 percentage points to 17.5 percent. The male NEET rate continued to be relatively flat, with a 0.1 percentage point rise to 11.0 percent.
The 15–19-year NEET rate increased 0.3 percentage points to 9.6 percent over the quarter. However, over the same period, 18,000 more 15–19-year-olds were in education and training but not in employment.
In unadjusted terms, over the year there was a large fall in the number aged 15–19 years in the labour force. The number who were unemployed rose (up 5,300) but there was a larger fall in employment (down 20,300). As a result, the15–19-year unemployment rate rose significantly – up 6.7 percentage points to 30.9 percent.
In the year to December 2012, the 20–24-year age group had no significant movements. Their employment and unemployment rates both rose slightly. For the quarter, the 20–24-year NEET rate increased 1.3 percentage points, up to 18.5 percent.
Here's what BNZ head of research Stephen Toplis has to say.
New Zealand is in the midst of a deep recession. In recent history conditions have only been worse immediately after the Global Financial Crisis hit its depths and during the late eighties/early nineties economic rout. Through calendar 2012 30,000 people lost their jobs and there was a 48,000 drop in participants as the disenfranchised simply gave up looking for work. The self-employed lost their businesses in droves and many walked off their farms.
No it’s not April Fool’s day. This is indeed what the latest official data on the state of the labour market say about the state of the New Zealand economy. This leaves us with a dilemma. Do we simply ignore the data or do we downgrade our view for the economy, interest rates and the exchange rate?
For all intents and purposes, we are closer to the former than the latter. Indeed, we are just in the process of putting together a major upgrade to our medium term growth forecasts.
The confusion that the employment data is creating is far and wide:
- To start with, the unemployment rate fell to 6.9% from 7.3% a quarter earlier. This was a number lower than expected and lower than the RBNZ had forecast. If this had happened in the US the Fed would be one step closer to getting rid of QE. In New Zealand, the RBNZ should be one step closer to tightening. But the problem is the unemployment rate fell because there was a massive drop in the participation rate in the quarter. Indeed, the largest drop ever. This might make sense had the economy been in a slump but GDP grew an estimated 2.0% in the year to December. At no other time in recent history have both the participation rate and numbers employed been in decline while the economy has been expanding.
- The number of folk employed fell 1.0% in the quarter and 1.4% for the year. In contrast, the Quarterly Employment Survey (QES) suggests employment grew around 1.5% in the last twelve months. This might in part be explained by the fact that the QES does not survey farmers or the self-employed. But to blame the entire variation on this seems a big call.
- Actual hiring and business hiring intentions are polls apart. Why have businesses been telling us porkies for so long and why do they continue to expect employment growth?
- Why are consumers so confident when so many are supposedly losing their jobs?
- The housing market usually reflects the state of the labour market. Why is it so strong? According to the data, productivity growth is very strong implying that businesses are making great efficiencies and cost pressures are dissipating. Really?
- There has been a record collapse in part time work over the last twelve months but full time work is actually edging higher. This may be due to the unwind from the Rugby World Cup but this does not explain why the process accelerated in the December quarter. Seasonal adjustment issues perhaps? Watch out for the impact of the Census in Q1 of this year.
According to today’s data, oldies are retiring by the thousand. There may at least be an element of truth in this given our aging population, and this phenomenon will certainly impact adversely on labour market supply over the next decade or so. We were, however, a little surprised by the intensity of this development.
In short, we don’t know the answers. And we are more than a little unsure what to do with our forecasts. For now, we’ll stick with our view that the unemployment rate lowers progressively over the next two years, that wage pressures rise modestly, and that modest employment growth occurs.
We are also assuming that the RBNZ will broadly stick with this view even though the employment numbers were clearly substantially worse than it had anticipated. At the margin the Bank must now be a little more sanguine about inflation emanating from the labour market and so the risk that rate increases are delayed further rises. But this is all marginal stuff so we will stick to our call of a first hike in December 2013.
Westpac's economists say they are sceptical of the results of the Household Labour Force survey.
Our assessment of the labour market has not really changed - it is still weak, but we do not believe that it has suddenly gotten sharply better or worse. Consequently, we would not be surprised to see the market reaction moderating over the day.
Last quarter, the unemployment rate jumped sharply from 6.8% to 7.3%, but the result was widely disregarded on the strength of other evidence such as the falling number of unemployment benefit claimants. This quarter, the unemployment rate dropped back into line with broader assessments of the labour market, to 6.9%. This was as expected and probably represents a correction from last quarter's statistical noise - we don't think the labour market has suddenly improved.
But the surprising part of the December HLFS was a 6% decline in part-time work, which caused a 1% decline in overall employment. However, this was matched by the largest ever recorded decline in the labour force participation rate, from 68.4% to 67.2%.
The 1% decline in employment was a spectacular negative headline that duly caused a market reaction - the NZD fell half a cent and 2-year swap rates fell a basis point. However, we find the sharp drop in part-time employment implausible. When participation and employment move sharply in the same direction, it may be an indicator of surveying issues.
A few years back we had a similar sharp spikes in both employment and participation - they were promptly reversed the following quarter. Other labour market assessments have not been nearly so weak. For example, in today's HLFS full-time employment was up 0.4% and hours worked were up 0.3%. In Tuesday's Quarterly Employment Survey, full-time equivalent employment rose 0.4%.
Labour-related surveys have been soft, but have not taken any disastrous lurch lower. So our assessment of the labour market has not really changed. The labour market is still weak, but we do not believe that it has suddenly gotten sharply better or sharply worse.
TD Securities' Economist Annette Beacher was also sceptical about the figures.
The unemployment rate fell from 7.3% to 6.9% (mkt 7.1%) entirely due to the outsized fall in the participation rate from 68.4% to 67.2% (—that is the biggest one-quarter dive ever, and we have to question this survey, again). While the -1.4%/qtr slump in the labour force is odd, the bottom line remains where the labour market has been stagnant for three years now.
While not necessarily a helpful exercise, we have to note that if the participation rate didn’t fall then the unemployment rate would have jumped to 8.3%. Three years of labour market stagnation is not good news.
However, the labour market is not going to be ‘fixed’ by already accommodative monetary policy being loosened by another 25bp. Unfortunately fiscal policy assistance is hamstrung as PM Key and Finance Minister English strive for the near-impossible task of balancing the budget over the next two years.
A point of frustration is that there are multiple sources of high frequency data available on house prices, but yet there is only one quarterly and highly unreliable survey on employment, arguably one of the most critical variables when attempting to assess the correct stance of monetary policy. More funding for statistics please!
Last week, we pushed out the timeframe of +25bp from June to September. Our year-end OCR target is 3.0% and our end-2014 target is 3.75%. Our base case remains somewhat aggressive compared with consensus’ +25bp clustered around March quarter 2014.
Labour Finance Spokesman David Parker pointed to the fall of 33,000 in the number of people looking for work.
Disappointed Kiwis are giving up on John Key’s brighter future. National’s hands-off policies are forcing Kiwis to opt out of looking for work or head to Australia. All across New Zealand there are tens of thousands of New Zealanders looking for work. Just last week 190 jobs were lost at Summit Wool Spinners in Oamaru - a desperate blow to the community.
National promised to rebalance the economy but all they’ve done is tilt the balance even further in favour of their well-off supporters. We need an economy that creates jobs through exporting and modern manufacturing. Sadly National is content for us to simply export milk powder. Our current account deficit, high unemployment and population loss to Australia show National is inadequate.
National has no ambitions for our economy. 163,000 Kiwis are looking for work, exports are falling, manufacturing outside agriculture is in trouble and we have a BZ$10 billion external deficit, which is worse than every developed country bar Greece. The only part of the country with significant job growth is Canterbury, due to a tragedy and insurance inflows rather than any policy from the Government. New Zealanders want a Government that will take a hands on approach to get the economy moving and Kiwis into well-paid jobs.
(Updated with details, economists reactions, Labour Spokesman's reaction, market reactions)