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Economists think the unemployment rate will show a discernible lift for the September quarter, but the figures are not likely to be as bad as was being forecast earlier in the year

Economists think the unemployment rate will show a discernible lift for the September quarter, but the figures are not likely to be as bad as was being forecast earlier in the year

A somewhat clearer picture of the labour market will begin appearing this week.

And that picture should show a discernible rise in the rate of unemployment, perhaps to around 5.5%.

What is reasonably clear is that the wage subsidy in particular has cushioned the blow from the Covid crisis to date and to this point job losses in New Zealand have not been as extreme as was feared earlier in the year when economists were pointing towards perhaps double digit percentages of unemployment.

Statistics New Zealand's labour market release for the September quarter is out on Wednesday (November 4) and all things being equal should show a rise in the unemployment rate - and economists think it will be heading over 5%.

Remember, however, that the June quarter release produced a monumental surprise, with an unemployment rate that actually FELL to 4% from 4.2%.

This of course was during the period in which large parts of the economy had ground to a halt while we were all locked down.

The lockdown was a big part of the problem - making it very difficult for Stats NZ to measure in the usual way what the rate of unemployment actually was during a period in which people who might have lost their jobs couldn't actually be actively seeking work.

For the September quarter Stats NZ will have had a much clearer run at collecting the data - so, we should get a better read on what the situation is - though there's still likely to be what what the economists like to refer to as 'noise' in the figures. 

ASB senior economist Mike Jones is expecting a 0.7% fall in employment over the quarter. Coupled with a 0.5 percentage point rebound in the labour force participation rate (to 70.4%), this would deliver an increase in the unemployment rate from 4.0% to 5.4%, he says. 

"This is very unlikely to be end of the rising unemployment trend (we have the peak pegged at 6.5% in June 2021). Things will get tougher. This being the case, we suspect it would take a fairly big surprise from the data to change the Reserve Bank or anyone’s view about the labour market. The [central] Bank is already aggressively responding to the expected continued slackening in the labour market over the coming 12 months.

"There’s usually a pretty close link between economic activity and the jobs market in any given quarter. However, the wage subsidy has changed all that. The quick deployment and massive size of the subsidy undoubtedly cushioned the blow of the recession on the labour market. Some of the gloomier unemployment predictions have thus been revised to more palatable levels. But as wage support started to roll off from June, joblessness has increased."

ANZ senior economist Liz Kendall and economic statistician Kyle Uerata say their "best educated guess" is that the unemployment rate will come out at 5.2%-5.4%.

"With challenging times ahead and temporary supports rolling off, we expect the labour market to deteriorate further. But for now, the picture could have been much worse," they say.

"There are a wide range of possible outcomes for the unemployment rate this quarter, after Q2’s surprise decline from 4.2% to 4%. Last quarter, weakness in the labour market was understated, difficult to measure, and masked by disrupted labour force participation. Without the abrupt shift seen in the participation rate, the unemployment rate might have printed at 4.6-4.8%."

They say the unemployment picture would have looked a lot worse if not for the wage subsidy and other supports.

"That said, the data has plenty of scope to surprise us, with a wide range of plausible outcomes for employment (-0.7% to +0.4%) that could see the unemployment rate in the range of 4.4-6.1% (table 1).

"We can also imagine the data printing outside this range, though we don’t consider it likely. How we interpret data on the day will depend on the extent to which the data appears to be impacted by noise. And to some extent, we – and policymakers – will look through whatever the data throws up, waiting to see the scale of further deterioration as supports continue to roll off and the economic recovery stagnates."

The ANZ economists say broadly speaking, an unemployment rate near their expectations would be consistent with the labour market undergoing a modest deterioration -  that they then see accelerating in the fourth quarter and continuing over 2021.

"Stronger employment and a lower unemployment rate than we expect would imply the economic rebound and wage subsidy have provided more support, pointing to a better starting point ahead of the challenging time to come. On the other hand, weaker employment and higher unemployment would point to a faster deterioration and less resilience as supports wane."

They say that overall, conditions look set to get tougher and this week’s labour data are unlikely to change that broader picture.

"We expect employment growth to remain weak and that unemployment will eventually peak at 7.5% at the end of 2021."

Westpac senior economist Michael Gordon is expecting this week's figures to show that the unemployment rate to rose to 5.5% in the September quarter.

"The June quarter results will have understated the impact of Covid-19 on unemployment. Even so, the impact has been much less than initially feared, with the economy rapidly rebounding from lockdown conditions. Wage growth is likely to remain muted.

Gordon says pinning down the impact of Covid-19 impact on the New Zealand labour market has been difficult. The September quarter survey, however, was "relatively free of Covid disruptions and measurement issues" (though some restrictions were re-imposed in August), "so it should give us a cleaner read on labour market conditions".

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20 Comments

I'm waiting for Australia's unemployment figures in 2Q21. All of the subsidies end in March, and there economy was in bad shape for more than a year before covid hit.

The country spent much of the last few decades trying to diversify themselves out of digging holes in the ground.
Turns out all it took for their non-mining economy to turn to dirt (pun intended) was a virus and subsequent border closures, forcing the entire country to hang on to an economic bailout from the mining sector.

If we cant get some great unemployment numbers the housing market may tank when the owners cant make principal repayments even at zero interest. Will know by march to June quarters if this can happen.
I am in favor of this to force a fall in house prices.
If they wanted stimulus they should have handed out cheques so the bottom of society benefits and not just the debt fueled property owners!

Our economy is propped up by a fake foundation... stimulus such as low ocr, no lvrs...at some point clown economics do not work...

And the stimulus is also costing us heaps in the long run by creating grounds for misallocation of capital and skills in low-value enterprises.

I agree. If only somebody could convince the clown in charge (Mr Orr)...

As some knowledgeable person/s on this website have pointed out you can work 1h a week? and are employed. The underemployment figures is the one to watch. All those hospitality and part time/casual work have probably been drastically reduced. Some of them may even need the part time work to service their mortgage. Need to wait until the mortgage holiday is over to see the real effects of unemployment and underemployment.
Meanwhile there are no figures on deferred mortgages from the RBNZ as they are not classified as non-performing. A more meaningful figure would be the number of residential properties that have requested deferred mortgage repayments or reduced payment over a range of percentage reductions. This would scare the property market. Something the RBNZ is at pains to avoid.
updated extract letter from RBNZ letter 17Aug20 to the banks.
"For transparency, the Reserve Bank is considering whether to require additional data reporting from lenders with respect to deferred loans, building off the existing Bank Customer Lending Survey (previously, Stress Indicators Survey). This will help to monitor the volume and performance of deferred loan exposures over time."
Not sure what economists speak is for "volume". When I did science at school volume meant liter, cubic centimeters, milliliters etc.
Commerce Commission economists also call kilowatt hour kWh which is a measurement of energy, volume of electricty. Weird in my book

I can't understand why the Banks would not be drip-feeding their non-performing mortgages into default and selling properties into this market?

Get whole and get out.

I'm not sure if the RBNZ keeps certain stats but don't make them public. I've not dug around. How many have the banks foreclosed on and for what length of time the banks have held them since foreclosure until selling.

nigelh - would be interesting to know the numbers on Covid income support of those who lost jobs, presumably they will not be counted as unemployed but when scheme finishes many may sign on the dole and swell the unemployment numbers.

Its way higher than 5.5%. Its interesting that in the USA it gets tracked and the "Real" figures are up to 3 times the "Official" figures. The current "Real" unemployment rate in the USA is running at 25%. http://www.shadowstats.com/alternate_data/unemployment-charts

I would love to see a clear definition of what the "unemployment rate" is. For example, if someone becomes unemployed and their spouse/partner is still employed, then I don't think they qualify to register as unemployed..... as there is still one income in the household. Someone on here might know what exactly the "unemployment rate" is?

Qualification for an unemployment benefit has got nothing to do with it. The unemployment rate is calculated from a survey carried out by Stats NZ.

https://www.stats.govt.nz/topics/employment-and-unemployment

thanks I read the article. So even if someone works 2 hours a week they are considered employed.

Yes. The under-employment rate and the participation rate are just as important as the headline unemployment rate.

That person working 2 hours would be considered employed but may show up in the under-employment category if they want more hours.

Let's play. Price is right rules. I'll go low I think. 4.9%

Pretty sure the calculation is not real world and heavily in favour of minimizing the figure. I mean take this example. 5 people have their pay cut 20% or their hours cut 1 day a week. To my way of thinking 1 person out of that 5 just became unemployed. I think that's the problem with the official USA stats if you work 1hr a week then your employed.

I don't see how unemployment can be under 6% given that there was an increase of 60,000 in Jobseeker support numbers. If it is, it is due to (a) lot of secondary earners giving up looking for work or (b) Stats NZ not counting job seekers as unemployed again during lockdown in Auckland.

I understand that every 28000 unemployed = 1%, so your figure suggests a 2%+ rise.

Even the earlier estimate, seems becoming a distant past. It's within RBNZ mandate to watch for this unemployment figure, crystal clear what they are going to do about it - If NZ all employment goes to the wall? - all of us will be get assurance of continual wage subsidy, upon subsidy.. upon further subsidy.. after all? - whose going to pay for the rental? or Banks mortgage? - The fast moving question to govt & RBNZ by worldwide standard is just that, put into one word of... 'Confidence'. good? or bad?