Don't expect to hear cheers from the Reserve Bank building if the latest labour market figures reveal a rise in unemployment.
After all, it might be a bit crass to appear pleased at people losing jobs. But you've got to believe the RBNZ folk WILL quietly breath a big sigh of relief if our super hot labour market is finally showing tangible signs of cooling (IE through a rise in unemployment).
We'll find out what's what when Statistics NZ reveals the suite of labour market measures for the June quarter on Wednesday (August 2). This is a biggie.
As I've said before, the labour market figures are actually the key economic data to follow at the moment - even more so than the inflation figures.
And while that might sound odd when we've got annual inflation still running at a too-hot-by-far 6%, the point is that until the RBNZ sees some 'slack' in that labour market, it can't be confident about getting the inflation genie back into its bottle. The 'bottle' in this case is the 1% to 3% target range that inflation has now been outside of for two whole years. The RBNZ wants inflation down. It needs unemployment UP.
We've been experiencing a quite astonishingly tight jobs market.
Unemployment did spike higher at the start of the pandemic in early 2020, with the jobless rate getting as high as 5.2% by September of that year.
However, as it became clearer that the economy was not going to capitulate - in fact far from it - employees started becoming a scarce commodity, not least because the closed borders largely closed off the option for employers of importing labour to fill gaps.
So, by September 2021, unemployment was down to a historically low 3.3% and it has been bouncing somewhere around that level since. It was 3.4% as of the March quarter, which was the same as in December 2022.
The RBNZ reckons (as per forecasts in its May 2023 Monetary Policy Statement) that the figures out in the coming week will show unemployment blipping up to 3.5% as of the June quarter. The central bank is then expecting a quick cooling of employment conditions - forecasting that unemployment will be 4.6% by the end of this year.
However, it is fair to say the labour market figures have confounded the RBNZ's expectations more than once in the recent past.
If we go back to the RBNZ's MPS document and forecasts in May 2022, we can see that then the central bank was forecasting that unemployment would have risen to 3.8% by March 2022 (it was 3.4%) and would go on to rise to 4.0% by June of this year.
In its February 2023 MPS the RBNZ forecast 3.5% unemployment for the March quarter and 3.8% by June.
So, as we can see, the labour market has consistently been hotter for longer than the RBNZ has expected.
While the last annual inflation figures actually came in lower than the RBNZ forecast (6.0% versus a pick of 6.1%) the figure for domestically generated inflation fell only from 6.8% to 6.6% - significantly stronger than the RBNZ's 6.3% pick.
Full employment is helping to keep people spending, and that's allowing suppliers to keep raising prices. If there was to be less job security, through rising unemployment, that would equal less spending. That's the theory anyway.
With the last inflation figures therefore being a big disappointment as they amply demonstrated that domestically generated inflation has become very 'sticky', the RBNZ will be feeling some heat as we go into the release of these labour market figures.
Remember, having hiked the Official Cash Rate at tearing speed up from just 0.25% at the start of October 2021 to 5.5% now, the RBNZ in May indicated it was finished - for now at least - with hikes.
And sure enough the RBNZ 'paused' at its OCR review earlier this month.
Those inflation figures will have not helped the central bank's comfort levels, but they won't have moved the dial when it comes to the next OCR review on August 16. The RBNZ will still be in 'pause' mode...unless...
What if the unemployment rate were to NOT go up, or even come down lower? Cat. Among. Pigeons. It would depend on the detail in the figures. But this would definitely be a shaker for the RBNZ.
After the August 16 OCR review, there's only one more rate review (on October 4) before the election on October 14. I've already indicated that I reckon the RBNZ's pretty keen to NOT have to go to the rate hiking well again before the election.
If therefore the coming week's unemployment number does NOT go up, the RBNZ will be in a pickle. And you could confidently expect the markets to start pricing in another rate hike again. For the record, I still think the RBNZ would in any case sit tight on August 16, but an unfavourable (for the RBNZ) jobs figure would lead to a very uncomfortable review - and observers would definitely regard the August review as a 'live' one in such circumstances.
So, the stakes are high for the coming week's labour market figures. I didn't have any economists' previews in front of me at time of writing, but it appeared from various comments that at least some of the economists were pretty much concurring with the RBNZ that the unemployment figure will come in at 3.5%. (After penning those words I received ANZ's preview - and the ANZ economists are picking 3.5%.)
If it is at that level, or even slightly higher, then the RBNZ folk will be breathing that aforementioned sigh of relief, and there will be NO CHANCE of any more OCR hikes before the election.
Such information as has come to hand ahead of the release of the labour market figures has tended to be supportive of the idea of the jobs market finally starting to tighten.
What we will likely see is that there will again be plenty of jobs getting filled in the June quarter (some 22,000 extra jobs were added in the March quarter) - but remember there's now people getting off planes again to help fill those jobs. More than 105,000 overseas workers arrived into New Zealand in the first half of the year.
The anecdotal suggestion has been that the unemployment figure didn't go even lower than it did because employers simply couldn't find suitable staff while the borders were closed and so many jobs actually went unfilled. So, it's possible the figures even understated how hot the labour market has been. But these jobs that were not filled are now being filled, courtesy of the inflow of migrant workers.
All of which suggests the market should now be tightening and unemployment may start to rise.
The latest BNZ-SEEK Employment Report for the month of June showed the third consecutive monthly drop in job ads, which would appear a fairly clear sign of cooling demand for staff - and the sort of thing you would expect to see as a precursor to a rise in unemployment.
The coming week is not solely about job numbers of course, there's the not insignificant matter of pay.
A tighter than tight jobs market has meant that employers have had to pay up. The fact that a lot of people have been able to get pay rises at least close to the rate of inflation has enable people to keep spending - and it has enabled goods and services providers to keep inflation pumping with price rises.
Stats NZ's labour market data shows a number of measures of wages. I prefer to look at the figures for the annual rise in average hourly earnings. The RBNZ's looking for this measure of wage inflation to drop to 7.6% from 8.2% as in the March quarter. Theoretically as more jobs get filled the pressure should come off these wage rise figures. However, the RBNZ will want to see the evidence - remembering that it did actually forecast 7.6% wage inflation for March and ended up being well shy of the mark with the actual figure as mentioned coming in at 8.2%.
Anecdotally again, wage pressures do now appear to be easing.
So, there we are. All will be revealed. We'll get figures on Wednesday that either show the RBNZ is on track, or alternatively that it's applecart has been upset
The available evidence at this stage suggests we'll most likely get an outcome that enables the RBNZ to breath a little easier. But then again, where would life be without little surprises along the way?
*This article was first published in our email for paying subscribers early on Friday morning. See here for more details and how to subscribe.
51 Comments
Professor of economics Bill Mitchell claims on his blog that the NAIRU and the use of monetary policy to control inflation is a fallacy and it can actually increase it. https://billmitchell.org/blog/
The best way to get readers is to make some kind of crazy claim, no one would read an article saying the current system is fine.
I guess we will see what happens, but it for you look over history we have had much more stable inflation rates since inflation targeting than beforehand.
William Mitchell is Professor of Economics and Director of the Centre of Full Employment and Equity (CofFEE) at the University of Newcastle, NSW Australia. He is also the Docent Professor of Global Political Economy at the University of Helsinki, Finland, and JSPS International Fellow at Kyoto University, Japan.
CofFEE is dedicated to providing an evidence base to support full employment and equitable distribution of opportunity, income and wealth.
William Mitchell is Professor of Economics and Director of the Centre of Full Employment and Equity (CofFEE) at the University of Newcastle, NSW Australia. He is also the Docent Professor of Global Political Economy at the University of Helsinki, Finland, and JSPS International Fellow at Kyoto University, Japan.
Mitchell's main claim to fame is being a poster child of MMT.
CofFEE is dedicated to providing an evidence base to support full employment and equitable distribution of opportunity, income and wealth.
These are not compatible claims.
Full employment keeps the masses occupied, and just well off enough to stop burning the place down, but capitalism will mandate that wealth is not distributed anywhere near equally.
I gotta say we are lucky having the hard-working, industrious immigrants. A friend of ours 2 kids love learning. They're a simple family but make the most of what little they have. Give it a few years and they'll be middle class and proud of their kids
Stinking thinking causes our sinking
It's largely true.
My earlier working years were alongside migrants, and one of my earlier thoughts after seeing the difference in work ethic and approach was "these people will eat our lunch". A couple of decades earlier, and this has turned out to be the case, both internationally and internally. Not that it's a NZ specific problem, the wealthiest ethnicity in the USA are Indians.
Hire 10 kiwis, 1-2 might be a trooper who makes the business money, 4-5 might break you even, and the other 3-4 or so are going to be an absolute nightmare where you burn money finding that out and having to move them along. Sounds kinda cold, but not every one of us performs to the same level, and many don't know their worth (either has a valuable productive employee, or someone who isn't really cut out for employment).
the wealthiest ethnicity in the USA are Indians
I agre with everything else but that's comparing apples and oranges. NZ doesnt attract the same calibre of migrants from India that US does. Most are techies or engineers with advanced degrees from top-notch unis.
NZ (and Canada) are popular destinations for being easy to migrate for those with limited skills trying to escape mediocrity in India.
Talented engineers and PhDs researchers from India at the likes of Google and Tesla sit in decade-long queues for their permanency in the US. Very slim chance for anyone to get their PR for cooking meals or stocking shelves there or in the UK.
While there's some truth in what you say in that the apex move for many Indians is to be a doctor/engineer in the States, only around a quarter of Indian migrants to there are techies or engineers, and the bulk work in offices. The US will by far and away attract the best migrant talent, everyone else (NZ included) gets the best of the rest. High achievers usually have a bias towards earning big money so migration flows for high earners are skewed quite heavily towards countries with the highest earning potential. That has us quite a bit further down in that realm - that's inescapable reality of trying to attract big earner types.
It's not so much that India is mediocre, it's that their society is fairly fixed and wealth mobility isn't really a thing. Income and wealth is skewed by caste and station, where the best jobs are generational government employment. Indians have the highest labour participation rate and highest American University attendance, coupled with a fairly thrifty approach to money and spending, ergo they accomplish the most in a market like the US.
Well, my experience has been there are good, mediocre and bad individuals amongst all nationalities. Your attitude is surprisingly anachronistic.
Immigrants have generally been through a filter of some sort. They try to weed out the criminals for example and points are gained for good qualifications and removed for poor health status.
Criminal past, qualifications and health status isn't the same as work ethic, which is something the immigration process can't filter. Very clearly different cultures have different approaches to work, driven by a variety of factors including status, shame, lack of a safety net, pride, etc. Many other cultures aren't engendered towards throwing a sickie, or seeking out ways to do as little as possible.
That's not to say every Kiwi is lazy and every migrant is a model worker, but after employing a few hundred people over the years, there's an observable variation.
Most of our small scale industries have foreign clients and these clients are now favouring their local suppliers.
The small companies are still not letting go of skilled labour despite a drop in orders as its twice as hard to find them later. But it will thaw as how long can they be negatively geared?
The bigger island over the ditch looks very tempting now. They have lots of natural resources and infrastructure to dig out. Most of the world wants it, so they are better placed for this downturn.
Pike river should have been an open cast mine wouldn't of had the deaths. A mine in Ross (which geologist say sits on a lot of gold) is expecting 2.1 billion in gold. Reefton if allowd a very large gold mine (depends on greens) Waihi town has a mile deep gold mine the mine wanted to shift Waihi as there was so much gold underneath but no. Has nothing to do with floods. We have some of the highest grade coal in the ground that countries would pay us top dollar for more than pay to alleviate any damage from flooding. Anyhow it's flooding now and still the resources sit in the ground. How about mining ocean floor since our ocean is 15 times NZ landmass. But no might hurt a fish or two
Aus is very dependent on overseas demand for its digging economy. They definitely use the migration machine to ‘artificially’ prop the economy which has some pros; skilled workers who are well behaved (crime-wise) but also it’s cons, housing affordability which is enough to send people packing (disclaimer: this is me).
Australia has a lot going for it but any Kiwi moving there should have open eyes about the housing crisis there. Their often touted affordable housing is a mirage unless you want to live in a cookie cutter suburb that makes Pokeno look like Soho. A house in a decent suburb in Sydney, say 500 sqm <5km from beaches cbd and harbour will start around $7m + $400k stamp duty.
Urgent need for Australia to generate creative future housing solutions
https://independentaustralia.net/politics/politics-display/urgent-need-…
Who wants to live in Sydney anyway. It's a dumpster of humans. No sane person would live there unless one is hungry for money.
Plenty of places in Australia to earn decent and live a good life without sacrificing one's quality of life. We get only one life, no point ruining it by running around like headless chickens.( Sydney life.)
Have a good look at that first graph, and note that the trend appears to take a decided turn downwards when the first of the Baby Boomer hit the eligible, paid retirement age in ~2011. That trend is likely to continue at an ever-increasing rate until 2030. So why we think unemployment is going to rise into the face of that is surprising thinking. (NB: That...is happening across the Developed World. And as it does, we will all cut each other's throats to attract the workers we need to fill the void. Wages will increase. Prices will increase. Interest rates will increase. Rinse and repeat.)
Productive workers aren't going to be put out of work. There will be less of them each day, and the competition for the labour here, and especially elsewhere, will escalate. But, yes, there's a range of things that need fixing. "It's not how much is in your pay packet that matters, but what that amount can buy"
I can personally attest to this. I'm rapidly approaching retirement but my bosses are in denial about this. This is possibly because I do such a good job of looking after myself and appear to be younger than I am, plus I am pretty sharp, however it is something of a blessing and a curse.
I had imagined I'd spend the last few years cruising along at low revs yet instead I find myself still mentoring people who have been in the industry 20 years or more who should be at the top of their game. I work late into the evening or the very early morning and on weekends. In Japan 49% of workers claim there are old employees in the office who don't appear to do much work, if any work, at all. Very civilized indeed!
Working for a living is apparently now more of a lifestyle choice
LINDSAY MITCHELL: Waking up to reality (bassettbrashandhide.com)
Wage rises are driving inflation? Don’t swallow this dangerous rightwing myth
https://www.theguardian.com/commentisfree/2023/jun/28/wage-rises-inflat…
I guess we all have a dead horse to flog, and Owen appears to have found his.
Owen Jones is a Guardian columnist and the author of "Chavs: The Demonisation of the Working Class and The Establishment – And How They Get Away With It."
Mine? "It doesn't matter what should happen, only what will"
Give this a little thought. Remember when we jumped from 4.1% unemployment in June 2020 to 5.2% unemployment in September 2020 as we shut the economy for COVID-19? If we go from 3.4% to 4.6% unemployment by the end of the year, that would actually be a larger increase in unemployment than when COVID-19 hit.
If you actually believed the RBNZs forecast our economy is about to nosedive into what would be a colossal economic crash. Luckily most people understand that RBNZ couldn't forecast when Christmas is going to occur, their data analysis remains absolutely appalling and they aren't even performing basic sanity checks before publishing wild estimates.
You know where I stand on this from the 2023 predictions thread:
This years prediction:
The unemployment rate in New Zealand will not exceed 4.2% in 2023.
Even if there is a recession, which is nowhere near a foregone conclusion, our population age demographics will keep unemployment rates ultra-low.
We are importing a lot of unskilled, low income migrants. Whilst losing skilled, high income workers to Australia.
Of the 143,000 people currently in the country on work visas, only 12,000 are Essential Skills (it used to be 66,000 back in 2021). 11,500 are RSE workers, 27,000 are Working Holiday backpackers, 24,000 are Family members of workers, and 18,000 are "Other" (down from 62,000 in 2020). There has only been a net gain of 35,000 people on work visas since Oct last year. In the meantime, 5000 nurses alone have left for Australia.
So basically the only way unemployment is going up is if unskilled, low income New Zealanders are replaced by unskilled, low income migrants. Which is a bad thing if it happens.
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