NZ unemployment 6% in June quarter; Worse than expected (Update 4)

New Zealand's unemployment rate rose to a seasonally adjusted 6% in the June quarter from 5% in March, Statistics New Zealand said today. This was above economist expectations of around 5.6% and 5.7%. (Update 4 includes further economist comment.) Economists are saying that the higher than expected unemployment figure was partly down to an increased labour force participation rate over the quarter, which indicated more people were actively looking for jobs than before. A rising unemployment rate is cited by many as being a dampener on the housing market and will keep the pressure on Reserve Bank Governor Alan Bollard to keep the Official Cash Rate at or below 2.5% until late 2010. The 1% increase was the largest quarterly increase since the September 1988 quarter. Seasonally adjusted, the male unemployment rate was 5.7% (up from 5.1%) and the female unemployment rate was 6.3% (from 4.8%). The working age population (WAP; ages 15-64) rose by 0.3%, or 11,500 in the June quarter, which was reflected in the increase in the total labour force (employed + unemployed), Stats NZ said. The labour force participation rate rose 0.1%, indicating that 68.4% of the working age population was in the labour force. The number of working age people not in the labour force rose by 0.2%.

"The increase in WAP was partly due to a 1,400 net gain in permanent and long-term migration (s.a) during the June 2009 quarter," Stats NZ said. "The male labour force participation rate rose to 75.2 percent (up 0.4 percentage points), while the female labour force participation rate dipped to 62.1 percent, from 62.2 percent in the previous quarter. Despite this decrease, the female labour force participation rate in the latest quarter is still the fourth highest since the survey began," Stats NZ said. Full time emplyment fell 1.1%, or by 18,000 over the quarter, while part time employment rose 1.3%, or by 7,000, Stats NZ said. The level of people 'underemployed', those who worked part time but would like to work more hours, increased in June. "The number of underemployed people may serve as a measure of underutilised labour in the economy," Stats NZ said. "Of the 514,100 people employed part-time in the June 2009 quarter, 22.2 percent (114,300) preferred to work more hours. This compared with 21.2 percent in the March 2009 quarter and 16.5 percent in the June 2008 quarter." "In the June 2009 quarter, 28.7 percent of males working part-time preferred to work more hours compared with 19.5 percent of females." Unadjusted figures Unadjusted figures (see chart) show that 5.8% of the sampled labour force was unemployed at the end of June, up from 5.6% at the end of March. There would have been 133,500 unemployed workers in the labour force, with 65,300 of those female and 68,200 male. The male labour force is 12% bigger than the female labour force. The unadjusted labour force participation rate fell 0.3% in the June quarter from March. The number of the working age population not in the labour force rose 1.3%. The sample is 15,000 households and 30,000 individuals each quarter. Here is ASB economist Jane Turner's take on the seasonally adjusted figures:

(U)nderpinning the strong pick up was not so much in the loss in jobs, employment declined just 0.4% (close to the market expectation of -0.5%, but much better than ASB's expectation of -1.3%). Rather, the rise in unemployment came from stronger population growth (working age population increase 0.3%) and an increase in participation. Over all there are more people hunting for jobs (an increase in the labour force of 0.6%), and the modest decline in number of people employed saw the unemployment rate jump sharply. Despite the 6% unemployment rate, this result has one positive offset, as more people are hanging onto jobs throughout this recession. The more muted decline in employment was a result of full-time employment falling 1.1% offset by a 1.3% rise in part-time employment. The definition of part time employment is working less than 30 hours a week. As a result the shift in jobs from full-time to part-time may reflect firms attempt to reduce hours worked by each employee in order to save job losses. Total hours worked fell 1.9% over the quarter, suggesting that over all labour income earned by the household sector is still declining. There was good news and bad news in the release. The bad news is that measured unemployment is likely to be high going forward: the number of people chasing jobs is higher than anticipated. The good news is that the combination of rapidly reducing wage growth and only a modest drop in employment strongly back up anecdotes that the pain of falling labour demand is in part being borne by wage freezes or reduced work hours rather than outright layoffs. The eventual drop in employment over the course of the recession may be contained by these measures, which would mean some families avoid the stress and disruption triggered by redundancies.

BNZ economists said Thursday's unemployment figures "cemented" their message that September's Monetary Policy Statement was very much live for an OCR cut.

While we're not over the line on this, the odds are virtually 50%. And even if there is enough to keep the Bank from cutting on the day "“ for example, if the NZ dollar abates, or the economic news picks up more patently "“ then it can always signal a near-term OCR cut in its forecasts for all to see. Don't say we haven't been warned (especially those betting on OCR increases within six months "“ that is, the market at large).

However, Westpac economists said they expect the RBNZ to keep the OCR at 2.5% until late 2010.

This labour market report was weaker than we expected, but in the bigger picture it only confirms what markets already knew - New Zealand has experienced a severe recession. Markets are now firmly focussed on the nascent economic recovery, and today's data shed no light on that. And in any case, the unemployment rate came in close to the Reserve Bank's 5.9% forecast. Therefore there was little market reaction. The slack labour market, illustrated both today and in Tuesday's wage report, does show that inflationary pressures are non-existent. Even if the economy recovers quite sharply, the Reserve Bank will feel little pressure to hike the OCR as early as markets suggest. Equally, we seriously doubt the RBNZ will act on the easing bias it promulgated at the last OCR review, because we believe the economy can recover with an exchange rate approaching 70 cents. We expect the RBNZ to remain on hold until mid-2010.

ANZ National economists said the figures reiterated their view that the recession would be shaped like a 'bathtub with waves'.

Today's figures reaffirm weakness in Q2 for the economy, easing pressure on core inflation, and headwinds the household sector faces going forward. Feedback effects from a rising unemployment rate and a de-leveraging consumer remain a key feature of our expectation of a protracted and bathtub (with waves) shaped cycle. In this environment we continue to expect the RBNZ to keep the OCR low for an extended period, and well into 2010.