The 'hoarding' of workers by businesses may have kept unemployment significantly lower than would have been the case - and there's a risk the situation could now reverse, economists at the country's largest bank believe.
In an ANZ Insight publication, senior economist Miles workman said economic modelling suggested that the decision of firms to hoard workers in anticipation of economic recovery might have reduced the unemployment rate by about 0.5 percentage points in recent quarters.
In other words instead of the rate being 5.1% as recorded at the March 2025 quarter, it could have been 5.6%.
(New figures for the June quarter out on Wednesday of this week are expected to have shown an increase in the unemployment rate to 5.3%)
Workman said if the economic recovery firms are anticipating fails to materialise with sufficient strength (as many high- frequency indicators are currently suggesting), firms may be forced to 'right-size' their work forces through layoffs instead of waiting for demand to catch up.
"This shift could amplify the rise in unemployment and exert downward pressure on inflation, necessitating a lower OCR [Official Cash Rate] than the 2.5% terminal rate we are currently pencilling in," Workman said.
At the moment the OCR stands at 3.25%. It is, however, widely expected that the Reserve Bank (RBNZ) will cut the rate to 3.00% at its next review on August 20. However, financial market pricing currently suggests it won't go much lower and possibly won't even hit 2.75%, let alone under 2.5%.
ANZ's Workman says that while inflation "still isn’t quite where the RBNZ want it to be", and structural/ administrative price pressures are a worry, "it may not take much of a slowdown before the market-driven side of the CPI basket threatens an undershoot in inflation".
The RBNZ is charged with keeping inflation, as measured by the Consumers Price Index (CPI) in a 1% to 3% range. As per the June quarter the annual rate of inflation had risen to 2.7%, but the RBNZ believes the current surge will be temporary.
Workman says he’ll be watching data closely over coming quarters for signs that firms are starting to shed their hoarded labour.
"All in all, most signals suggest firms have less balance sheet strength to hold on to labour than they did a year ago," he said.
"...If the [economic] recovery doesn’t materialise with the gusto firms have been anticipating, the labour market could be hit with a double whammy: weaker-than-otherwise demand for labour and a shedding of hoarded labour," Workman said.
He said although recent inflation data remained a little too high for comfort, the RBNZ will need to start putting more weight on downside medium-term inflation risks.
"That suggests a dovish pivot could be on the cards at some point this year."
Workman said the motivation behind labour hoarding is intuitive: it is typically costly to hire and train new staff, and if firms expect the current lull in demand to be temporary (and they have the balance sheet capacity to pay for it), it might make sense to hold on to workers so the business is well positioned to respond when demand for its goods and/or services picks up again.
"But what happens if the economic recovery many firms have been anticipating doesn’t arrive with the gusto they have been expecting, and firms decide to start shedding hoarded labour? In this scenario there could be two forces contributing to worse labour market outcomes than otherwise: the impact of weaker-than expected GDP growth on labour demand, and the unwinding of past labour hoarding. These forces would very likely feed one another."
Workman said based on their forecast for GDP growth, if labour hoarding were to stop containing upward pressure on the unemployment rate, it would lift to just under 6% by the end of the year.
The RBNZ has been forecasting a peak of 5.2%.
15 Comments
Right Size here we come
An unemployment rate of 6% by the end of the year is likely - although seasonally you'd expect on uptick in employment around December.
Q2 is predicted to have negative GDP - if Q3 is the same then we are back in recession and unemployment will still be rising at this point.
Seems like the RBNZ may have missed a trick by pausing. Probably should have made a bit cut instead!
If the RBNZ had cut another 25 basis points or even 50 would it have made any difference? Where would that additional income go?
Into a better mood?
The antithesis of depression?
Some have been banging on for a log time that the economy is in a worse state than many believe, and that as a result, the OCR will be dropped lower than everyone expects.
I repeat again, keep fixing short, interest rates have further to fall than what many think.
Trump is your biggest fan
Yep. Far to much focus on the drug of choice, being leveraged speculation on housing. What else do we have now its cold turkey time? To boot the last lot loaded us up on another 100b of debt. Councils are overloaded with debt as well, at least Akl now has a rail loop...almost, big whoop.
Those developing IP and producing real product are doing ok. Exporting to the US has a forecast of more Orange rain and China looks like it has its own issue bubbling away. If China really slows, then NZ and our second largest trading partner, Straya, are in for an increasingly bumpy ride.
All over 65s should probably retire and free up jobs for younger people.
If they are still paying Mi Lord rent they can't afford to.
It would be interesting to know the percentage of those 65 and over who genuinely cannot afford to retire. It's kind of subjective though. It's astonishing that so many Boomers, the richest generation ever, haven't given enough thought about funding their retirement. Living in the moment.
I'm over 65 now and still working. I can retire but the reasons for carrying on are currently complicated. I suspect I wouldn't be replaced if I retired so don't feel too bad about my situation. I am being retained just in case things pickup. I am ready to handover to younger staff if that occurs. My retiring probably wouldn't free up a job right now. I wonder how many people are in my position.
The proportion of big bank shares in Australian superannuation accounts has become so dangerously high that it should be capped to protect savers from any sharp fall in the housing market, a major investment bank says.
UBS equity markets strategist Richard Schellbach has proposed a cap be imposed on the weighting of the bank stocks in the S&P/ASX 200 to reduce the risk to savings retirements, echoing concerns raised by the Reserve Bank of Australia last year.
Triple whammy?
It's very difficult for employers to retain and get new staff during covid, that many are probably holding onto some extra headcount. Deeper recession will see deadwood cut. Turnaround will see excess staff earning their way again and allow businesses to jump on new opportunities.
See what happens...
Yes, I am in this predicament. I have a lot of experience that cannot be quickly replaced. Also knowledge of legacy systems that new hires wont be too interested in. I have never been laid off in almost half a century due to never being too specialized. I specialized in being a generalist and generally lacking in career ambition, especially management. I have even hinted that I would be a good choice for redundancy as my redundancy payout has expired due to hitting retirement age. Yet I soldier on.
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