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Economists are picking a December quarter 2020 unemployment rate of around 5.6%, higher than the 5.3% rate in September; unemployment likely to peak later this year

Economists are picking a December quarter 2020 unemployment rate of around 5.6%, higher than the 5.3% rate in September; unemployment likely to peak later this year

Economists believe unemployment has continued to rise and increasing jobless numbers are not set to peak till later this year.

However, they are quick to point out that Statistics New Zealand unemployment figures out on Wednesday and likely to show a rise to about 5.6% are nothing like as bad as feared in the early stages of the Covid crisis.

Indeed, at one point last year some economists were seeing the percentage of people without work hitting double digits, such was the pessimism.

In the event the support of the wage subsidy and the fact the economy has been largely open for business since the country moved to Alert Level 1 in June last year, has seen far fewer job losses than once feared.

The Reserve Bank in its last Monetary Policy Statement for 2020 released in November picked December unemployment of 5.6%, then rising to 6.2% in March, peaking at 6.4% in June and then gradually falling.

Other economists are expecting something broadly similar and the market consensus for the December is around the 5.5%-5.6% level, which will be a small rise from the 5.3% figure in September. These figures compare with unemployment of around 4% prior to the Covid crisis hitting. Other general trends expected from the December quarter figures are for a slight increase in the 'participation rate' - the number of people seeking work, and for subdued wage increases.

Kiwibank economists, who expect a slightly lower unemployment figure than the average market pick - namely 5.4% - say they are "not picking as much damage to be shown than we previously expected".

However, they don't believe a 5.4% unemployment rate represents the peak in the current cycle.

"The unemployment rate is forecast to rise further at the start of 2021. There have been growing anecdotes of worsening trading conditions for tourist operators now that NZ's holiday period is sadly behind us. The unemployment rate is now expected to peak closer to 6% compared to the 6.5% we had previously forecast. If realised, a 6% peak unemployment rate would be a remarkable outcome from Covid - a once in a century crisis. However, as we have seen in the last few weeks, we are still susceptible to Covid, and an optimistic forecast remains fragile until vaccines have been rolled out."

Westpac senior economist Michael Gordon's expecting an unemployment rate of 5.6%.

'Substantial increase'

"That’s a substantial increase from the pre-Covid rate of around 4%, but much lower than was feared in the early stages of the pandemic.

"The [Household Labourforce Survey - Stats NZ's unemployment data] is an average over the quarter, so developments within the quarter are important for understanding the results. Stats NZ has provided a week-by-week breakdown of the data for the last two quarters, which highlight the impact of Covid and the efforts to control it. After a sharp rise over the June quarter, the weekly unemployment rate was volatile but largely sideways over the September quarter."

ANZ senior economists Liz Kendall and Miles Workman (also expecting a 5.6% unemployment figure) note that there is "some spare" capacity in the labour market, "but conditions are much better than previously feared due to our strong economic recovery and policy supports".

"The medium-term outlook has also improved. Weaker economic momentum this year will weigh on employment, keeping the RBNZ cautious. Improvement is expected towards year end, but will be sluggish until the border opens. After that, unemployment is expected to fall faster, raising the spectre of policy normalisation in time."

Kendall and Workman say continued deterioration in the labour market early this year is expected to weigh on the RBNZ’s thinking, underpinning ANZ economists' view that quantitative easing through the large scale asset purchases (LSAP) timeframe will be extended in February and the Official Cash Rate will be taken "a little lower" in May from the current 0.25% to finish the easing cycle.

'Delicately balanced'

"But the outlook for policy is delicately balanced. The RBNZ’s November MPS forecasts included a peak in the unemployment rate of 6.4%, but we expect this will be revised down on the back of a buoyant housing market, resilient business sector and better starting point and outlook for GDP. The starting point and outlook for inflation has also improved.

"Scope for steady improvement in unemployment and inflation over 2022 raises the possibility of monetary policy normalisation once downside risks recede (once Covid-19 herd immunity is reached, in particular) and the RBNZ’s targets are firmly in view. Based on our current forecasts, the labour market and inflation will be at or near their targets in mid-2023, at which point the RBNZ may be comfortable with embarking on policy tightening. But there is a lot that could happen between now and then: upside risks could bring this timing forward into 2022, while downside risks could see alternative tools, like a negative OCR, deployed or the OCR remaining at its record low for much longer.

"A gradual approach to normalisation seems likely based on the current outlook, but the speed of tightening will ultimately depend on economic momentum as headwinds recede and the recovery accelerates. For now, we maintain the view that tightening will be off the table until the outlook is more assured, with risks skewed towards more stimulus, not less, over 2021, especially with unemployment still rising. But a path to normality does look to be within our sights, even if the road ahead is bumpy, and risks to the outlook are in both directions." 

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25 Comments

Should we then have been printing so much money. Much of which has pumped up house prices. Maybe it helps people who own houses feel richer and therefor spend more, but it will likely also cause rent inflation overtime meaning non home owners feel like they have less money to spend.

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With the relentless attack on producers of wealth in this country - and the latest statistics on kids failing maths and science - and a political propensity to conflate government spending with wealth creation, our destiny is eventual hyperinflation. There is already some level of hyperinflation the property market - but people don't see it as hyperinflation, people see it as wealth creation. But this wealth creation is dependent on money creation, and money creation will inevitably destroy the purchasing power of the NZD, which is why they had to mandate the increase of the minimum wage, which in turn affects the profitability of small businesses, which in turn affects the unemployment rate, which in turn requires more government assistance (including WFF, accommodation supplement), which in turn will require either more taxation or more money printing, which in turn will drive higher inequality and so the cycle is perpetual. This should be addressed now. But it won't because governments cannot address the problem that is their own tendency to borrow and spend at will, in fact we are all directed to borrow to 'create wealth', that's the ponzi scheme in NZ. But it will end in tears. It is nothing other than the baldfaced in the light of day transference of wealth from savers to speculators as decreed by monetary policy from the RBNZ and the fiscal policy of the Treasury. Remember this so you can accurately explain to your kids and grandkids why NZ is so poor.

Who has brain washed the morons running this s##t show.
None of this qe money creation fad creates wealth.
The wealth we have is merely divided into smaller and smaller pieces and redistributed - mostly to our most unproductive, such as landlords and the welfare State.

The money from QE is retained in the exchange settlement accounts of the banks. It's only purpose is to cause interest rates to fall. The banks don't require money to lend out as they create new money when the lend.
The Bank of England tell us this.
This article explains how the majority of money in the modern economy is created by commercial banks making loans. Money creation in practice differs from some popular misconceptions — banks do not act simply as intermediaries, lending out deposits that savers place with them, and nor do they ‘multiply up’ central bank money to create new loans and deposits. The amount of money created in the economy ultimately depends on the monetary policy of the central bank. In normal times, this is carried out by setting interest rates. https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/money-creatio...

QE causes interest rates fall, more money is borrowed, assets gets pumped.
And thus the wealth is redistributed away from savers and non asset owners. i.e in NZ s case mostly to the landlords/specuvesters.
A legalized theft.

Exactly, using monetary policy to support the economy is self defeating in the end as it drives up house prices and household debt. The government does have an alternative though and that is to use fiscal policy, it could be building more houses for instance or financing local councils to build and repair our worn out infrastructure or financing environmental projects as examples. There are always things that need to be done.

Unemployment is a signal the the government is not spending enough. The government should balance its budget to offset what the private sector is doing so as to maintain full employment. As long as there is unused capacity within the economy that can be put into productive use then it cannot be inflationary.
Also taxation cancels money, every time that money changes hands some of it will be taxed back and cancelled, that is its purpose, it is not to finance the government.
Beardsley Ruml was a chairman of the New York Fed and he had this to say.
since the end of the gold standard, "Taxes for Revenue are Obsolete". The real purposes of taxes were: to "stabilize the purchasing power of the dollar", to "express public policy in the distribution of wealth and of income", "in subsidizing or in penalizing various industries and economic groups" and to "isolate and assess directly the costs of certain national benefits, such as highways and social security. https://en.wikipedia.org/wiki/Beardsley_Ruml

That's MMT right?
So - yes if the borrowed money is used for the productive side of the economy, that would tamp inflation if you actually produce more things with the money created. But if you look very closely at the RBNZ spreadsheets - money is created against housing... not business investment. Should the government expand it's jobs program - I mean roadworks contracts, we may get better infrastructure out of it, however looking at light rail and that sort of thing, I don't have confidence that government can accurately invest in the economy - and why should they? That's not their area of expertise. They're talkers.
If you're going to say taxes stabilise a currency - well I guess when the time is right and the average person is staring down the barrel of 10% inflation per year (probably already happening though not caught by the CPI because flat screen TVs are cheaper)- you'll be the one to tell them - "we better raise your taxes then". Good luck with that.

Inflation and taxation.... with which to crush the middle class. Wasn't that Lenin who said that?

There was a time in the past when the government used to do everything, we had a Ministry Of Works and it was very successful. it built our roads and our hydro electric schemes and mass state housing. All in the days before neo-liberalism came along and now we have a government that doesn't seem able to do anything. Our roading projects now all run behind schedule and massively over budget and they need constant repair because they haven't been properly constructed.
Yes MMT, it tells us that the government always has to spend first before it can tax or borrow as it is the source of our currency and that a government deficit is equal to a private sector surplus which provides our savings which are held in the form of government bonds. The government sector and the private sector are a mirror image of each other along with our external balance, this is referred to as 'sectoral balances'. Some explanation here, if you look at the chart you will see how they mirror each other. https://gimms.org.uk/fact-sheets/sectoral-balances/

What are the arguments against the NZ government spending a trillion dollars tomorrow on.... whatever? From a MMT perspective

MMT recognises that too much Govt spending can lead to competition for limited resources, which can lead to dangerous levels of inflation. It is available resources that constrains Govt spending not some made-up 'deficit'. This was all well understood in the 1940s when the Govt had to constrain private sector spending to ensure that resources were available for the war effort (without an inflationary effect). Govt spent like crazy during this period - leading to fulltime employment and a very prosperous 1950s and 1960s. Then some idiots invented neoclassical economics and 50 years of madness ensued.

What did the government spend all that money on? And why didn't inflation run riot if they spent like crazy, and instead had a very prosperous 1950s and 1960s, and why couldn't Venezuela spend like crazy and have a very prosperous 2010's?

It was a pretty simple strategy and described very eloquently by the US Treasurer at the time (below). The USA (and UK etc) used war bonds and rationing to reduce consumer demand so that the additional Govt spending associated with the war effort did not lead to inflation.

"The nature of the inflationary pressure inherent in diverting half of the income stream of the country to the government is simple. It is this: The value of all of the production of the country goes to its producers in the form of wages and salaries, rents, interest, dividends, and profits. But only half of this production consists of goods and services which are available to be purchased by these producers. The remaining half goes to the Government for prosecuting the war. The problem is to prevent the people from trying to spend all of their incomes on half of the goods -and so merely bid up prices(Morgenthau 1945b, 408)"

Venezuela's problems came from having massive debts in US dollars that it could not create - meaning it had to print loads of its own (rapidly devaluing) currency to buy US dollars to pay its debts. They had 33% unemployment ffs - their economy wasn't overheating! And, don't get me started on the Weimar republic.

Strongly agree that we need to focus hard on building an economy that is about actual value-generation - i.e. making and doing things that make the country a better place. But I would argue that the major issue here is not the conflation of Government spending and private sector innovation (the latter is dependent on the former after all), but the conflation of the 'speculative' and 'real' economies. The speculative economy adds no real value - zilch; yet, it is the focus of economic reporting and measurement - like watching the odds change on the screens at the bookmakers before a horse race. There is also no 'money printing' or actual 'borrowing' that I am aware of - just Govt swapping financial assets in the hope that banks having more liquidity (when interest rates are low) will somehow convince businesses to invest in the real economy.

As usual, check the labour force participation rate over the next year. If there is a rise in unemployment this is where it will be reflected.

Do you have the stats?

The MSD Covid Relief payments end 4th Feb. Formally 2 income households will soon be single income households if the person on Covid relief has not been able to find another job.
RBNZ will resume standard regulatory treatment of loans from April 2021. I.E. If you can't pay by then. The bank will have to treat you as a non performing loan.
International tourism is looking very unlikely to restart before the end of the year.
In short +6% unemployment in June 2021 is going to hurt a lot more people than +5% unemployment in 2020.
We are still walking the tightrope. But the net is about to be taken away.

Surely the largest driving factor is the moderation in immigration levels? With the rubber stamp take away from Immigration the slack is starting to be taken out of the Labour market, if this continues it will lead to higher wages and advancement of people's careers.

Luckily I expect the government will want to stop this as rapidly as possible.

The more immediate problem will be underemployment, not reflected in the govt stats conveniently.

How come these figures differ so drastically from the actual number of people on benefits? According to MSD the % of working age people on Jobseeker is 6.8%, while the number of people on benefits (not counting super) is 12.4%. Over 2020 there has been a huge jump in the number of people on the single parents benefit and the disability benefit (which highlights what a rort both those benefits are!) who don't even show up as unemployed JobSeekers. The number of young people on a benefit has gone from 22,000 to 39,000. There are more unemployed people as of Jan 22nd then there were end of December 2020 so unemployment is going up not down.
https://www.msd.govt.nz/documents/about-msd-and-our-work/publications-re...

You could be on a Jobseeker benefit, but working 1 hour a week, so I believe you would be counted as employed by Statistics NZ. The participation rate, under-utilisation rate and unemployment rate all need to be taken into account to get an accurate picture.

Sounds like a case of the good old, lies, damn lies, and statistics.

The unemployment situation is actually a boon market for businesses looking to restructure and reorganised their businesses. Previously untenable opportunities due to industry specific skills shortage is likely to relief as the pool of candidates increases.

Businesses should look at restructuring their labour costs and consider new acquisitions or ventures as the pressure in the labour market increases. Cash generated from the current situation should be fully reinvested or at least cut the dividend in line with the current economic uncertainty to protect shareholders.

that headline hasn't aged well!