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Roger J Kerr says the Q4 employment data may be suspect but it is a lagging indicator anyway pointing backwards not forwards. You agree?

Roger J Kerr says the Q4 employment data may be suspect but it is a lagging indicator anyway pointing backwards not forwards. You agree?

 By Roger J Kerr

I have always dismissed the HLFS employment statistic as an economic follower or consequence, rather than providing any useful information as a lead indicator as to future economic performance.

The volatility in the surveyed series has become more pronounced of late and certainly the last two quarters’ outcomes appear particularly misleading.

The RBNZ have already expressed miss-trust of the HLFS employment results against the other employment trends they monitor, therefore there are no monetary policy implications from last Friday’s HLFS shocker.

The poor employment results may have become a political football; however that will not be affecting Graeme Wheeler’s view of the economy going forward.

Climatic conditions for grass growth (or lack thereof, as Hawkes Bay farmers informed me over the weekend) have a far greater impact on GDP growth than jobs numbers in New Zealand.

In any case, employment growth follows GDP growth, not vice-versa.

According to the HLFS employment numbers (refer chart below) the economy is headed for recession; however all the forward looking indicators (e.g. business confidence) and market pricing (e.g. NZ dollar and NZ sharemarket) point to GDP growth between +2% and +3% this year.

More jobs are going to come from the downstream food processing industries in New Zealand (e.g. Heinz-Watties, Tegel and Chinese owned infant formula plants) over coming years and the Government’s role is to foster that investment and thus new jobs through regulatory certainty on big issues like water.

Another question for the Government is whether they should be taking some kind of lead on the rationalisation in the sheep meat industry to create a ZESPRI or Fonterra for New Zealand export lamb. 

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Roger J Kerr is a partner at PwC. He specialises in fixed interest securities and is a commentator on economics and markets. More commentary and useful information on fixed interest investing can be found at rogeradvice.com

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7 Comments

Is unemployment a flawed measurement then?

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No more so than flawed interest rate and currency forecasts - and we have our fair share of habitual failures.

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Other flawed items

Key, English, Joyce, Collins Wheeler

Regrettably we get the leaders we deserve.

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Rodger, rodger. For once I actually agree.

 

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In any case, employment growth follows GDP growth, not vice-versa.

Not quite true. Although GDP growth does not causally follow employment growth, it is certainly influenced by it in a pyschological sense. 

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Nominal GDP most recently recorded a paltry 2.63 % annual growth rate. Hardly conducive to expansionary business plans when the cost of funding such plans is at least double.

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Looking at the graph, the Correlation looks similar to some I've seen when the GFC happened? Maybe it's a correction occurring which is causing doubt with the data, it does not compute?? 

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