By Alex Tarrant
Unemployment leapt to 7.3% during the September quarter, its highest rate since 1999, as employment fell and the number of people looking for work rose.
The jump will again fuel expectations that the Reserve Bank will cut the Official Cash Rate from its current record low 2.5%.
Markets had retreated from this expectation after recent comments from new Reserve Bank Governor Graeme Wheeler.
But while some economists had not ruled out the unemployment rate rising back to 7% from 6.8% in the June quarter, the headline 7.3% rate in September would be a surprise shock for all.
Polls by Reuters and Bloomberg gave median expectations for a 6.7% headline rate.
Economic growth in New Zealand is expected to have fallen off since the middle of the year, following a strong first half.
The New Zealand dollar fell from 82.55 US cents before the 10:45am release to 81.68 US cents at 11am.
Seasonally adjusted figures released by Statistics New Zealand on Thursday showed the number of unemployed people – those actively seeking work but not in it – rose by 13,000 to 175,000 in the September quarter from June.
Of the 13,000 more unemployed, 10,000 were men and 3,000 were women.
The number of people employed fell by 8,000 to 2,218,000 during the quarter, a fall of 0.4%, and its second fall in a row after a relatively flat year, Statistics New Zealand said.
The Bloomberg and Reuters polls had given expectations for a 0.3% rise in employment.
The labour force participation rate – employed plus unemployed, as a percentage of the working age population – remained steady at 68.4%, Statistics New Zealand said.
The labour force (unemployed plus employed) grew by 5,000 during the quarter, indicating more people - predominantly women – were looking for work than in the June quarter.
Over the year to September 2012, the number of unemployed people rose by 18,900 (up 12.5%), Statistics New Zealand said.
The number of unemployed people who said they had been looking for work for over a year rose by 10,200 on an annual basis, reflecting increases in both male and female long-term unemployment (4,700 and 5,500, respectively), Stats NZ said.
“The number has been on the rise since June 2008 and is now at 21,100,” Stats NZ said.
Over the September quarter the seasonally adjusted NEET rate for youth (measuring those aged 15-24 not in employment, education, or training) increased slightly by 0.3 percentage points to 13.4%, Stats NZ said.
Since the December 2011 quarter the youth NEET rate has been between 13.1% and 13.5%.
The number of people ‘underemployed’ – those in part-time employment but wanting more work – was 113,300 in the September quarter, the highest since the end of 2009. It was up from 109,500 in the June quarter and 97,500 in the September 2011 quarter, which would have been affected by the Rugby World Cup.
Prime Minister John Key said he was surprised by the figures
“It’s slightly unusual data because it’s focussing on Auckland, and that runs a little counter to what we’ve actually anecdotally seen in Auckland," Key told media in Wellington.
“In fact, one of the reasons the Reserve Bank Governor gave for not cutting interest rates was because you’ve seen a housing bubble and so much movement in Auckland," Key said.
“So at the end of the day, that is the way the data’s fallen today. But the government’s got a clear plan, it’ll stick to that plan, and it’ll continue to grow jobs."
A number of conditions were needed for there to be job growth.
“You obviously need the world to start doing a bit better; You’ve got very weak conditions in Europe; You’ve still got the remnants of the crisis in the United States; And Asia’s been slowing down," Key said.
“We are a quarter of one percent of global growth. New Zealand can’t do this on its own.But I think the reforms that as a government we’re taking are actually pushing New Zealand to being more competitive and more productive, and I think that puts New Zealand in good stead,” he said.
New Zealand was "a very very small cork in a very large ocean."
"If conditions remain weak internationally, that makes our challenge more difficult," Key said.
“But it doesn’t stop the government reforming policy to make New Zealand more productive. In the end, we’re going to have in my view a fast-growing Asia on our doorstep. That will continue to be the case, eventually the United States will start growing again more rapidly, and eventually Europe will get through its problems," he said.
“New Zealand can only do what’s within its control, and that is, position those policies and make sure that we’re a competitive, productive economy.”
'Labour would be more hands-on'
Labour Party leader David Shearer said the Prime Minister's legacy to New Zealand would be the highest jobless rate in 13 years, since the last time a National government was in power.
“John Key promised he would create 170,000 new jobs. Instead we have 175,000 people looking for work and the highest jobless rate in 13 years," Shearer said.
“I know the biggest concern for New Zealanders right now is holding down a job that pays a good wage. It’s tough out there," he said.
“Today’s figures come as no surprise to New Zealanders. Week after week, more job losses are announced. Just two days ago high-tech manufacturer Rakon outsourced 60 good jobs overseas. On the same day Kiwi icon Fisher and Paykel was sold offshore, raising fears jobs will go with it."
Today's figures were "yet more disappointing news for New Zealanders, who are constantly being let down by this Government."
“What will it take for National to admit its hands-off policies aren’t working? How many more jobs will have to go? Kiwis deserve better," Shearer said.
“The last time unemployment was this high was the last time National was in power. There’s no coincidence, National brushes unemployment under the carpet. Labour is the party of jobs," he said.
“National doesn’t have the ideas or the willpower to get the economy moving and businesses flourishing. Labour does.
“Labour will be hands-on. We will work with businesses, workers and communities to create opportunities, advance new ideas and get New Zealanders working for a just wage again," Shearer said.
“We will increase our investment pool by making KiwiSaver universal and use capital gains taxes and tax credits to direct that money to good companies that create high-paying jobs."
Employment -0.4% qoq, +0.2% yoy (ASB/market expectation +0.3% qoq)
Unemployment rate 7.3% (6.8% previously, ASB expectation 6.6%, market 6.7%)
Hours worked -0.8% qoq, -2.0% yoy
Canterbury employment +5.4% qoq (ASB seasonally-adjusted estimate), +2.9% yoy
Ex-Canterbury employment -1.3% qoq (ASB seasonally-adjusted estimate), -0.4% yoy
Employment over Q3 was considerably weaker than expected, driving a second successive increase in the unemployment rate. After dropping by 6.7% in Q2, employment in Canterbury rebounded by 5.4% in the latest quarter. However, employment in the rest of the country (as a whole) fell by 1.3%, outweighing the improvement in Canterbury. The ex-Canterbury unemployment rate rose from 6.8% to 7.6%, while the unemployment rate within Canterbury fell from 6.5% to 5.4% (ASB seasonally-adjusted estimate).
The weakness outside of Canterbury was especially evident in Auckland, where employment fell by 2.0% in seasonally-adjusted terms. That is somewhat surprising given that economic activity within the region has looked stronger than most of the rest of the country. Auckland house prices have been appreciating this year and surveyed business confidence has been stronger than elsewhere.
Looking across industries reveals a very mixed picture. On the whole, industries that suffered employment losses in Q3 had shown strong gains in Q2. However, employment in the manufacturing and education and training sectors continued a trend of shrinking employment in those sectors.
Employment growth in construction has been surprisingly weak, with employment falling by 0.1% over the quarter. That is the third successive quarter of declining construction employment. However, the Quarterly Employment Survey released on Tuesday does suggest a gradual lift in construction employment. We do expect employment in the sector to pick up as the Canterbury rebuild builds momentum, but difficulty finding skilled labour may be holding back growth in this industry.
This result reinforces the RBNZ waiting until September 2013 before lifting interest rates, notwithstanding the evident heat in the Auckland property market and the Governor’s recent remarks on housing and debt levels. Employment data over recent quarters has been volatile, especially on a regional basis, but the weakness in employment demand outside of Canterbury will become of more concern if it is sustained going forward.
Labour market sticker shock – but is the worst over?
Employment fell -0.5%/qtr in Sept qtr 2012, a very weak outcome compared with market (+0.3%) and TD (flat) but we were warned of a soft outcome after the QES survey reported no jobs growth. As full-time employment fell -0.8%/qtr while part-time employment rose +1.4%/qtr, hours work slumped -0.8%/qtr and doesn’t bode well for Sept qtr GDP.
§ While not entirely reliable on a q/q basis, the falls in employment were concentrated in the cyclical sectors of manufacturing, construction and transport, while agriculture and demographic beneficiary healthcare and had the biggest jumps. We expect a big turnaround in construction employment in subsequent reports given the surge in building approvals in recent months.
§ We forecast similar -0.2%/yr annual growth for year end, although this is the likely trough as we expect the recovery in housing and reconstruction in Christchurch to buoy the labour market over 2013, and we forecast the annual employment growth rate to pick up to +1¼-½%/yr by end-2013.
The unemployment rate rose from 6.8% to 7.3%, surpassing the prior peak of 7% in late 2009 (chart). However, this merely continues the sticky trend of 6-7% evident since mid-2009, and confirms that the labour market has been stagnant for over three years now. The participation rate remained unchanged at 68.4%, as expected (about the only variable that was).
§ We forecast the unemployment rate to contract from here, to shrink back to 5¾-6% by end-2013. The accepted NAIRU for New Zealand is 4½%.
Not much good news here A three year long stagnation in the labour market is not good news. However, the labour market is not going to be ‘fixed’ by already accommodative monetary policy being loosened by another 25bp or so. Fiscal policy (which can help the labour market) is hamstrung given PM Key and Finance Minister English are striving for budget balance over the next 3 years or so. This impotent policy combination explains why the labour market remains stagnant for so long.
The weak report prompted strong market reactions: the NZD slumped 70 pips to $US0.8188; 2yr swaps fell -5bp to 2.62% and the OIS has priced a 22% chance of easing in December, and has -15bp priced over the next twelve months. The latter pricing should be at least +25bp, as RBNZ Wheeler has set very high hurdles to easing, hence the next move remains up for the cash rate. Why? (1) favourable base effects will no longer assist the inflation rate, which is expected to swiftly jump to 2% by mid-2013 even if the NZD remains lofty; (2) inflation expectations remain well above the PTA target of 2%, and (3) house prices are rising at an alarming rate (QV measure just released jumped from 5.3% for 5.7%/yr for October).
The NZD is a sore point for the RBNZ, but Governor Wheeler has already shown the right perspective, claiming that QE is meaningless in New Zealand and that the NZD is high due to factors well beyond the control of domestic policy.
p.s. for today’s Australian labour market report – we are below consensus at -15k and u-rate rising to 5.5% with risks skewed towards rising further to 5.6% ….
Despite our forecast being almost spot on, it gives us no pleasure whatsoever to see the official unemployment rate rise to 7.3%. Actual official unemployment totalled 170,000 in September, up from 151,200 this time last year.
Adding to the bleakness is the increase in the number of ‘other jobless’ – that is, those without a job, but who do not meet the strict criteria to be classified as ‘officially unemployed’. The number of ‘other jobless’ has risen from 103,100 a year ago to 125,000 now.
That’s a total of 40,700 added to jobless numbers over the past 12 months.
These numbers add further to the compelling evidence that the New Zealand economy is increasingly fragile. Similarly sobering are the employment numbers, showing only a 1,800 increase over the past 12 months. Growth in job numbers has clearly slumped. Further weakness is confirmed when noting that full-time job numbers have declined by 16,800 over the past year.
Without changes to our policy settings, the short-term picture is not pretty, with our models projecting even further rises in jobless numbers.
With the export sector in serious strife and little demand from the domestic economy, the wisdom of the government pursuing its budget surplus target must be seriously questioned.
A change of course is urgently required if New Zealand is to avoid yet another damaging recession. Policy targets need to be refocused on resuscitating the export sector, bringing the current account deficit under control and avoiding deflation.
· Employment fell by 0.4 percent, to be unchanged versus a year ago. Full-time employment fell 0.7 percent, while part-time employment rose 1.9 percent.
· The unemployment rate leapt higher from 6.8 to 7.3 percent, a 13 year high. The labour force participation rate, which can often throw around the result, was unchanged. The fall in hours worked does not bode well for Q3 GDP.
· A two-speed economy is becoming increasingly clear. Canterbury employment rose 5.4 percent. Excluding Christchurch, the unemployment rate was 7.6 percent. Two-speed tensions will intensify.
· Labour market statistics are proving that old adage of “lies, damned lies, and statistics.” The HLFS has been very volatile in recent years, and has jumped almost a full percent in just 9 months: we are treating the result with a degree of scepticism. Official unemployment benefit numbers have been falling. The trend in job ads has been only mildly downward, and we suspect this is probably a more reliable measure of where things are at. We suspect that the HLFS survey is not fully capturing the employment boost coming from the rebuild.
· The labour market is weak, but the jury remains out as to the extent. Continued job loss announcements portend more softness.
· While somewhat sceptical over the degree of weakness, today’s data cannot be completely dismissed. It will crank up political pressure on the RBNZ, and confirms the risk profile for the OCR is down as opposed to up. If it were not for the Canterbury rebuild and pockets of credit activity, we would be calling 50bp of cuts. However, as it stands, we think the Reserve Bank will want more data to corroborate one noisy survey. In addition, they will be watching pricing indicators to feel comfortable that a broader front of pricing pressure is not likely to emerge out of the rebuild before a cut can be delivered. This looks a March 2013 story.
- A much weaker employment report than expected, with the unemployment rate at its highest since the late 1990s.
- We’re taking a cautious approach to the magnitude of the reported decline, but on balance the labour market has clearly weakened.
- A clear downside for monetary policy, but on its own probably not sufficient to provoke an OCR cut.
This was a true shocker of a Household Labour Force Survey. The economy shed 8,000 jobs in the September quarter, and New Zealand’s unemployment rate leapt up to 7.3%, a number not seen since June 1999, and much higher than anyone – us, markets, or the RBNZ – had thought plausible. The detail of the survey was every bit as weak as the headline (see below).
That said, we are taking a cautious approach to our interpretation. The HLFS has a history of throwing up wild false signals. Other labour market data we follow – Tuesday’s Quarterly Employment Survey, Westpac McDermott Miller employment confidence, businesses’ employment intentions – are saying that things are weak, but not quite this weak. We were particularly puzzled by reported weakness in construction sector employment: that doesn’t chime with all the signs of a turnaround in the construction industry that we’ve seen this year.
Still, the indicators do all agree that New Zealand’s labour market has taken a turn for the worse. This matches some recent news reports of high-profile job cuts, and suggests that export-oriented industries, such as manufacturing and wholesale trade, have shed thousands of jobs as the global downturn and high exchange rate has hit home. It also seems that businesses in growing industries are reluctant to hire yet, perhaps because they’re feeling uncertain, perhaps because they kept surplus staff on their books after the 2008/2009 recession. Finally, it may also be that in a rapidly changing economy, there is an increasing mismatch between skills available and skills demanded – this quarter saw another sharp rise in the number of long-term unemployed, even as short-term unemployment has been gradually trending down and firms continue to report that skilled staff are getting harder to get.
With a labour market as weak as this, inflation below 1%, and a host of evidence that the economy slowed sharply in the September quarter, it’s clear that the RBNZ won’t consider raising the OCR any time soon. Is an OCR cut on the table? We would say there is a risk, but more likely the OCR will remain firmly on hold. Both inflation and the labour market are lagging indicators. Had the RBNZ known a year ago that inflation and unemployment would fall to these levels, it may well have reduced the OCR at that stage. To cut the OCR now would be to chase one’s tail. The massive construction project that is the Canterbury rebuild has finally got going. Low interest rates are driving house prices higher. And some of the factors pushing inflation down over the past year (such as a rising exchange rate and the global downturn) are likely to fade over the year ahead.
The details of the report were pervasively weak. The 0.4% fall in employment was entirely concentrated in full-time jobs, which fell 0.8%, more than unwinding gains in the June quarter. As a share of the working-age population, employment fell to 63.4% - the lowest since December 2010. Both ‘actual’ and ‘usual’ hours worked fell 1.1%. The labour force participation rate held steady at 68.4%.
The fall in employment, and rise in unemployment, was concentrated in the male workforce – the share of women in work has held steady at 58.4% for the past year. Consistent with this, there were particularly large employment declines in industries where males tend to predominate – manufacturing (down 2.3% seasonally adjusted), wholesale trade (down 1.6%), transport (down 10.1%, unwinding an equal-sized jump the previous quarter). There was also surprising weakness in construction sector employment. Employment in the sector rose just 0.1% after large declines earlier in the year. Over the past year the HLFS measure of employment in the construction sector has fallen 4%, or 7000 people – in sharp contrast to the Quarterly Employment Survey, which showed employment in the sector rising 6.2% over the same period.
The latest HLFS is now increasingly showing the same regional divergence that have been increasingly evident in other data (though we’d caution that the survey’s regional breakdown can be very volatile). There was a big lift in Canterbury employment (up 5.3% seasonally adjusted) but a much weaker picture in the North Island, particularly Auckland, where employment fell 2.1%. And the survey does show a sizeable increase in employment in the Canterbury construction sector over the past year, of about 10% or 2900 people.
There has been another increase in the share in the workforce that are long-term unemployed (unemployed for a year or more), while the share of short-term unemployed (those able to find a new job in six months or less) has been gradually trending down. This may be a sign of an increasingly ‘two-speed’ labour market, and a corresponding mismatch between availability of skills and demand for skills –one explanation for why persistently high unemployment has coincided with economic recovery.
However, we’d also note that recent weak employment growth may to some extent be the flipside of what was an unusually mild employment downturn in 2008/2009, and again following the economic disruption of the Canterbury earthquakes. The result now is that firms have sufficient workers on their books to accommodate a modest increase in production without hiring new staff.
After the release the New Zealand dollar fell by 0.8 cents. The reaction on interest rate markets was more modest, with 2-year swap rates falling 4 basis points.
Q3 employment falls, unemployment rises
- Big surprise to market and RBNZ
- Especially following Tuesday's reasonable LCI and QES
- We do not see OCR cut, but risk of such increases
- Employment rate still above average
- Near term indicators important to watch
Looking through the noise, the unemployment trend appears clearly and significantly weaker than what the RBNZ had factored into its September MPS. It had a point estimate of 6.7% for the Q3 unemployment rate, not the 7.3% we got today.On its own this must increase the chance that the Bank lowers the OCR at some point. We think the chances have increased. The market seems to agree, given at least the knee-jerk reaction to move in that direction. But we are not convinced that the RBNZ will actually lower the OCR.
Figures in the chart below are actual (not seasonally adjusted) figures