By Roger J Kerr
The NZ Government’s Treasury department, the Reserve Bank of New Zealand, independent economic forecasting houses and bank economists have all being forecasting an increase in New Zealand’s unemployment rate over the next 12 months.
The current rate of unemployment as measured by the Household Labour Force Survey to 30 September 2015 is 6.00%.
The consensus view seems to be that record high migration inflows will continue and thus push the jobless rate higher in 2016.
The immigration inflows are predominantly returning Kiwi’s and those with work permits, so it is pretty hard to buy the argument you hear from some quarters that new permanent immigrants are taking all the jobs at lower wage rates! One local bank is forecasting the unemployment rate to increase to 7.00% by mid-2016; two other banks are predicting 6.5%.
It will be interesting to see what the RBNZ are forecasting when they update their forecasts for the economy on 10 December.
My view is that these rather pessimistic forecasts for unemployment will be wide of the mark.
The September quarter’s employment data did record a weaker growth in jobs following a weaker than expected GDP growth in the first half of 2015. History tells us that employment trends in the NZ economy are a lagged/backward looking consequence of economic activity levels, not a lead-indicator.
Therefore it was perhaps no great surprise that the labour market was not so strong in the September quarter. Latest economic data prints point to GDP growth being stronger in the second half of 2015 compared to the first half. There have been some job losses (mainly at middle management levels) in the dairy industry which is going through some pain with lower international prices.
The wine industry is also losing some local jobs as offshore owners of NZ vineyards ship the Sauvignon Blanc out in massive wholesale bladders in containers, rather than being bottled and packaged here. Look around the other major industries that make up the NZ economy and it is a story of expansion, confidence and hiring more staff (e.g. tourism, services, construction, retail, motor vehicles, infrastructure projects). International prices are on the improve in the forestry sector, so activity levels and jobs are likely to grow, not decline.
An unemployment forecast of 7.00% by mid-2106 would have to be based on annual GDP growth falling away to below 1.00% in late 2015. I do not see anyone forecasting such a dramatic slowdown in the economy. Several lead indicators for GDP growth (including business and consumer confidence) currently point to GDP growth around 2.5% and potentially higher.
The charts below support the case that the unemployment rate is likely to stay around 6.00% and potentially reduce through 2016.
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Roger J Kerr is a partner at PwC. He specialises in fixed interest securities and is a commentator on economics and markets. More commentary and useful information on fixed interest investing can be found at rogeradvice.com