Unemployment drops sharply, hitting lowest level since 2008

Wednesday, 7 November 2018

Unemployment has dropped to 3.9 per cent, the lowest level since the global financial crisis, causing the New Zealand dollar to surge.

On Tuesday Statistics New Zealand revealed that the seasonally adjusted unemployment rate was 3.9 per cent in the three months to September 30, down from 4.4 per cent at the end of June.

It is the lowest unemployment rate since June 2008, when unemployment was 3.8 per cent.

A survey of economists had expected the unemployment rate would show no change. The New Zealand dollar jumped half a cent against the US dollar on the news, to be buying US67.4c, the highest level in around three months, as the odds of an interest rate cut from the Reserve Bank dissipate. 

**READ MORE:

* Low unemployment, falling immigration and Government policy may finally start to boost wages

* New Zealand unemployment rate falls to the lowest level in nearly a decade

* Unemployment falls to eight-year low as job creation surges**

Prime Minister Jacinda Ardern said the figures were a reason to 'celebrate'.

'[We're] incredibly proud of where [the figures] now sit, understanding that these numbers fluctuate, but to have unemployment the lowest it's been in a decade and employment the highest it's been in three [decades], is incredible,' Ardern said.

The result of the household labour force survey was so far outside expectations that Statistics New Zealand said it was confident in the veracity of the numbers.

'We know New Zealand has a small economy with a dynamic labour market, and large changes, both up and down, have happened before – in late 2012 and 2015,' Statistics NZ spokesman Jason Attewell said.

'We also know labour market measures tend to lag behind other economic indicators, which have shown strong and widespread growth in 2018. We've seen population growth in the regions, reports of more job ads, high levels of migration and tourism, growing retail sales, and rising exports.'

The drop came as the economy added 29,000 jobs in the three month period, with the number of unemployed falling by 13,000. Both labour force participation and the employment rate hit the highest level since Statistics NZ began the survey in 1986.

The labour market has been improving for years, with unemployment trending lower since the end of 2012.

BNZ is now questioning whether unemployment has hit such a low level that it may not be sustainable. A lack of available workers tends to boost inflation, prompting higher interest rates.

Excellent result. The labour market is tight and there will be some fluctuation over time but this is another sign of success in the real economy. https://t.co/SXAC4VPtzU

— Grant Robertson (@grantrobertson1) November 6, 2018

In the face of business confidence

ASB chief economist Nick Tuffley said historically the unemployment survey was somewhat volatile, meaning there was some chance that part of the fall would reverse when the December quarter figures were announced in February.

'If we take [the figures] at face value, what is encouraging about it is it does fly in the face of what business confidence has been saying for the last year, which has been indicating businesses have been very circumspect full stop, but also very wary of hiring and investing in their own business,' Tuffley said.

'As yet we haven't seen any material signs coming through yet that weaker business confidence is impacting on the broader economy.'

ASB had been expecting that unemployment would gradually fall from 4.5 per cent to 4 per cent over two years.

'Even if we do get a little bit of a rebound in the next quarter, which you can't really rule out, we'd still expect the trend to be towards a tighter labour market over time,' Tuffley said.

Westpac senior economist Michael Gordon said the sharp fall may be an exaggeration, but still pointed to a labour market which was stronger than expected.

'The [household labour force] survey can be jumpy and other measures suggest that the true picture is less extreme than the headline of unemployment suggests, but that's still better than one might have expected if recent business confidence surveys were to be believed.'

Kiwibank chief economist Jarrod Kerr said the survey was the latest piece of unexpectedly good news, with economic growth coming in ahead of expectations in the June quarter, inflation lower than expected and the labour market appearing to be 'hot'.

Kerr predicted that the availability of work would help to boost consumer confidence, which had been falling.

'People want to work and they are finding work,' Kerr said.

'The solid labour market is expected to support consumer spending. Consumer confidence has drifted lower in recent months, as households respond to heightened uncertainty. But today's report shows a solid foundation. It's hard to imagine consumer confidence continuing to wane with such a solid jobs market.'

Labour market 'is tight'

Finance Minister Grant Robertson said the figures were an 'excellent result' in a post on Twitter.

'The labour market is tight and there will be some fluctuation over time but this is another sign of success in the real economy.'

Employment Minister Willie Jackson pointed to a record high employment rate. 'There are now over 2.66 million New Zealanders in employment which means that 29,000 more people and families are engaged in earning since the last quarterly results were released,' Jackson said.

National's finance spokeswoman Amy Adams welcomed the fall, but warned the fact that businesses were struggling to find workers were creating pressures.

'The Government inherited a strongly performing economy and today's employment data, being a lag indicator, reflects that and shows the importance of a well-performing, flexible labour market,' Adams said. 'The question then arises - why overhaul employment law now?'