Stats NZ says unemployment rate steady at 6.5% in June qtr; in line with economist expectations

By Alex Tarrant

New Zealand’s unemployment rate remained steady at 6.5% in the June quarter, in line with expectations, as the male and female unemployment rates moved closer together, Statistics New Zealand said today.

Economists polled by Reuters had a median expectation of 6.6% seasonally adjusted, with the two other wire agencies, Bloomberg, 6.5%, and Dow Jones, 6.7%, either side of the Reuters pick. Statistics New Zealand also revised the March quarter unemployment rate down from 6.6% to 6.5%.

ASB economist Jane Turner said the Reserve Bank would be encouraged by the result, with the figures giving it further reason to hike the Official Cash Rate by 50 basis points on September 15 to 3%.

BNZ’s head of research Stephen Toplis said the figures were “entirely consistent” with the wider economic situation, with the unemployment rate set to fall away quite rapidly over the next couple of years (see video interview with Toplis below).

“It’s very, very easy to see the unemployment rate heading towards a 5% by the end of next year. Given that the Reserve Bank thinks 5% is the level which defines inflationary to non-inflationary, I think that has significant implications," Toplis told interest.co.nz.

Breaking the data down, a 2% increase in employment over the last year jumped to 3% when Christchurch was taken out of the equation – a big shock in the data, Toplis said.

Meanwhile, house prices in our biggest city should also be supported by the fact Auckland was one of the leaders in employment growth.

“The big question is whether the market has adjusted sufficiently so far to let those house price increases come through. But you’d have to say, particularly in the Auckland market most indicators point to at least stabilization in house prices, and probably some modest growth," Toplis said.

Annual figures strong

Male and female unemployment rates came closer together over the quarter, with the male rate rising to 6.4% from 6.2%, and the female rate falling to 6.6% from 6.9%.

Employment grew ever so slightly over the quarter, up 1,000 to 2,214,000 seasonally adjusted by the end of June. Economists polled by Reuters had expected a larger increase of 0.2%. The number of unemployed people was unchanged at 154,000 s/a.

The size of the labour force grew marginally by 1,000 to 2,368,000 over the quarter. The working age population grew by 15,000 to 3,464,000, meaning the labour force participation rate fell 0.2% to 68.4% in June from March.

“Although key labour market indicators remain flat when compared with the March 2011 quarter, annual changes in the number of unemployed and employed show a continued strengthening of the New Zealand labour market,” Stats NZ industry and labour market statistics manager Diane Ramsay said.

“From the June 2010 quarter to the June 2011 quarter, employment grew by 43,000 people (2.0% ), which is approximately the population of Nelson. Both male and female employment increased,” Ramsay said.

“Over the same period, the number of unemployed fell by 6,000 (3.7%), the largest annual percentage decrease since December 2007. The unemployment rate has decreased – in June 2010 it was 6.9% compared with 6.5% this quarter,” she said.

Underemployed

Unadjusted figures showed 111,500 people were underemployed at the end of June, the highest level since the December 2009 quarter. Underemployed people are those employed part-time but would prefer to work more hours.

Official unemployed

The number of ‘official unemployed’ – the unadjusted number of those actively seeking and available for work – was 149,900 at the June quarter, down from 166,700 in March, and 155,300 in the June 2010 quarter.

Canterbury

For the June 2011 year, the annual movements for key labour market outcomes in the Canterbury region were in different directions from the movements in the national estimates, Stats NZ said.

The annual decrease in actual hours worked of 1.3% was consistent with movements in the Canterbury labour market.

“Employment decreased by 5,200 for males and 7,100 for females for the year to June 2011. There was a large rise in female unemployment (from 6,600 to 11,700). Male unemployment decreased from 10,200 to 8,100. The unemployment rate in the Canterbury region is still lower than the national rate,” Stats NZ said.

Economist reaction

(See ANZ economist Khoon Goh in the video above)

BNZ head of research Stephen Toplis:

Westpac chief economist Dominick Stephens:

The data was exactly in line with market expectations, and very close to our forecasts. 

The weak headline employment and unemployment figures mainly reflect disruption to the Canterbury labour market following the February earthquake (which was not incorporated in the Q1 labour market figures). There may also have been an element of unwind from last quarter's outsized 1.4% increase in employment (now revised to 1.3%). 

Apart from in Canterbury, it appears that the labour market is continuing to steadily improve. Full-time employment rose 0.2%, the sixth consecutive increase. 

Beneath the surface, there were clear signs of ongoing rapid economic recovery in the wider economy. For example, the 1.6% increase in hours worked adds to the growing body of evidence suggesting that the pace of GDP growth in Q2 was similar to Q1 (0.8%). 

Although the data was weak, it will do little to dissuade the RBNZ from reversing the 50bp 'insurance cut' in the near term, providing global financial risks recede. The RBNZ was forecasting 6.4% unemployment at the time of the June MPS, so the data was similar to expectations. And like us, the RBNZ would have been bracing for a weak read due to the impact of the Christchurch earthquake.

Market reaction and implications 
With today's data coming in bang on market expectations, the was little market reaction. In the immediate aftermath of the release the NZD/USD moved 10 pips higher while 2 year swaps edged up 1 basis point.

ASB economist Jane Turner:

Employment remained steady over Q2, in line with expectations.  The flat result follows strong growth of 1.3% over Q1, with employment up 2% on year-ago levels.  Today’s data confirm the labour market recovered very strongly over the first half of the year.   

The Q2 survey provides the first read on employment which incorporates the impact of the February earthquake.  Employment in Canterbury fell 3.2% over the quarter (ASB seasonally-adjusted estimate) and is down 3.7% on year-ago levels compared to the nationwide employment which is up 2% on year-ago levels.  The quarterly decline follows a 1.5% contraction over Q1 and indicates the region has been very severely impacted as a result of September’s and February’s earthquakes.  In particular, the closure of the CBD is clearly having an impact, with employment in accommodation and retail down 15.8% on year-ago levels.   Overtime, employment in Christchurch will recover has businesses relocate and reopen.  In addition, the reconstruction activity will aid a recovery in employment in the region over the next year.

Outside of Christchurch, the employment result was impressive recording 0.6% growth in employment on top of the previous quarter’s outsized gain of 1.8%.  The result confirms the strength in business confidence is translating into real activity, and suggests that economic growth has maintained momentum over the second quarter.  In addition, hours worked increased 1.6% (on a nationwide basis).  This is another firm sign of improving employment demand.   Aucklandappears to be leading much of the recovery.  Employment in Auckland is up 5.4% on year-ago levels, which compares to 2.0% growth on a nationwide basis. The lower South Island is just as strong.

Implications

There was no ambiguity in today’s data.  The labour market recovered further over Q2, with the lift in employment consistent with the QES data and market expectations.  As expected, Christchurch employment was heavily affected by the earthquake.  However, outside of Christchurch the recovery has been very impressive in the first half of this year, confirming the underlying momentum in the economic recovery continued through Q2.   The RBNZ will be very encouraged by this result, which will further convince the RBNZ to increase the OCR 50 basis points in September, with the insurance cut clearly no longer needed.

JP Morgan economist Ben Jarman:

The flat result on total employment hides some fairly significant fluctuations across sectors. Mining employment posted a very large gain of 19%q/q, though remains small as a proportion of the total workforce.

There also was resilience, as one would expect, in construction (+3.9%q/q). The finance and rental services industries both posted surprisingly strong results, with 10%+ rises in employment, while education and training also registered robust jobs growth (+4.9%q/q).

On the softer side, elevated NZD is beginning to show its footprint, with manufacturing employment down almost 3%q/q. Reflecting the continuing subdued performance of the household sector, wholesale and retail employment was down over 5%q/q.

While slack in the labour market remained unchanged on a head-count basis, utilization improved fairly substantially in 2Q after a few softer quarters, with hours worked up 1.6%q/q, and “usual” hours up 0.6%q/q. The former was the largest rise in hours worked since the onset of the financial crisis. With hours worked being a useful leading indicator of employment intentions, and the latter also being visibly stronger in the recent business surveys, the labour market seems well positioned for solid employment growth in coming quarters.

There is certainly nothing in this report, therefore, to make the RBNZ step back from their clearly phrased intention to withdraw the 50bps of earthquake “insurance” accommodation at the next meeting in September. Rather, the risks to that view lie offshore, as European sovereign concerns escalate again while global growth prospects continue to be marked down.

(Updates with JP Morgan reaction, video reaction from Stephen Toplis, economist reaction, chart, video reaction from ANZ's Khoon Goh)

Unadjusted figures

The chart below is based on unadjusted figures: