Last week’s data confirmed the severe toll that the recent recession has taken on New Zealand’s labour market.
The Household Labour Force Survey for the September quarter saw the unemployment rate jump a further halfpercentage point to 6.5%, the highest level in nine years. Although the unemployment rate is much lower than the early-1990s recession, the rate of increase has been every bit as severe.
We always expected this data to reflect the recession just past, rather than the recent flush of stronger data, as the labour market tends to lag economic growth.
Even so, we regard the overall survey as weaker than we expected. It was not so much the 0.8% fall in employment (16,000 jobs) – while weaker than our forecast of -0.2%, the error was neither here nor there in an economic sense. For the past two years, employment growth has been thrown around by movements in the surveyed participation rate, which has been extremely volatile and negatively autocorrelated (exhibiting a sawtooth pattern), and this quarter was no exception. We have found it more useful to focus on the unemployment rate, which was bang on our forecast.
The more important part was the 0.7% fall in hours worked, coming on top of a 1.9% fall in the June quarter. We had expected to see a lift in hours worked, as employers responded to early increases in economic activity by increasing the hours of existing staff, rather than hiring new staff. We still expect this to happen in coming quarters, but the process is proving to be slower than we thought. It’s possible that swine flu may have had an impact on the number of hours worked, as ‘usual hours worked’, which includes time spent on sick leave, fell by only 0.2%. But regardless of the cause, the drop in actual hours worked suggests that the economy may have grown by less than our 0.4% forecast for Q3.
