Official unemployment falls to 4% in June quarter but banks warn it won't last

Wednesday, 5 August 2020

Job ads fell in June, Seek said, but remained well up on pre-pandemic levels.

Despite predictions of a post-lockdown surge in unemployment, the official unemployment rate fell to 4 per cent in the June quarter, Stats NZ has reported in a shock release.

The unemployment rate fell from 4.2 per cent during the March quarter, which ended just after New Zealand entered level 4 lockdown.

Though a positive surprise, there are clear indications job losses have started to mount.

The official unemployment rate measures the average unemployment rate during each quarter, rather than the unemployment rate at the end of the quarter.

Stats NZ estimated unemployment had risen to 6.2 per cent during the final week of June but it said that weekly figure was based on a small interview sample of 500 people.

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The drop in official unemployment for the quarter also resulted from a much larger decline in the number of New Zealanders looking for work.

To be counted as unemployed, someone must have been actively seeking work or due to start a job in the following four weeks.

Fiordland is facing up to 40 per cent unemployment with many tourism business saying they're unsure about their future.

The number of people who were in employment was down 11,000 on average during the three months to the end of June and the total number of hours that people were paid to work fell 3.4 per cent.

The total number of hours that were actually worked during the period slumped by 10.3 per cent.

That was the biggest drop since records began in 1986 and reflected the fact that many people were still in employment but unable to work during level 4 and level 3.

Kiwibank described the headline drop in unemployment as “simply unbelievable”, saying it misrepresented the actual situation.

But Westpac said that while “broader measures” showed the true impact of the lockdown on the labour market, the overall picture was still less weak than it had expected.

Craigs Investment Partners head of private wealth research tweeted: “Even when you take the statistical nuances and anomalies into account, that’s still a far better labour force report than expected.”

Stats NZ said that if people who were unable to look for or start work during the quarter because of Covid-19 had been counted in the official unemployment rate, it would have come in at 4.6 per cent – up 0.4 percentage points from the March quarter.

‘‘During the June 2020 quarter, some people weren't actively seeking work due to the Covid-19 lockdown,' Stats NZ senior manager Sean Broughton said.

ASB economists have told borrowers that home loan rates will rise, unless something unexpected happens requiring the Reserve Bank to keep interest rates lower for longer.

“Near the end of the quarter, the unemployment rate may have increased because more people sought work as New Zealand moved down the alert levels and restrictions were eased.’’

Broughton said Stats NZ's measure of workforce underutilisation, which was a “broader measure of spare capacity in the labour market’’, rose to 12 per cent from 10.4 per cent in the March quarter.

The labour force participation rate fell 0.8 percentage points to 69.7 per cent.

ASB said the June quarter numbers had “quashed widespread expectations of a solid increase” in unemployment.

But it said the data needed to be “handled with care”.

The drop in official unemployment reflected a “smaller-than-expected drop in employment” of 0.4 percentage points but also the fall in the labour force participation rate as laid-off workers opted or were forced to leave the labour force, ASB said.

“Overall, today’s data is certainly welcome to the extent it indicates a stronger-than-expected starting point for the labour market,” it said.

“However … we know labour market conditions are likely to deteriorate from here.

“The real question is still how the jobs market settles once the various wage subsidy schemes end and the economy adjusts to its post-Covid normal,’’ it said.

ANZ went as far as to say the headline unemployment rate announced by Stats NZ should be “discounted”.

It said the Reserve Bank would be concerned by the outlook for the labour market “to deteriorate significantly from here” and it still expected the central bank to announce more monetary policy stimulus when it released its monetary policy statement next week.

ANZ had forecast that the official unemployment rate would come in at 5.7 per cent, while BNZ had picked the rate to come in at 5.9 per cent and Infometrics' forecast was 5.8 per cent.

ANZ had warned the June figure would understate “the true weakness” of the labour market.

“Looking ahead, official data will unfortunately give a poor steer on the true state of the labour market for a while, due to volatility and temporary policy supports that are delaying job losses.”

Westpac economists had said on Monday they expected to see the unemployment rate rise to 5 per cent.

“That is far lower than our previous forecast, which was 7 per cent,” the bank noted.

“We are stunned by this apparent resilience in the labour market’’ but the main explanation was wage subsidies, Westpac said in a bulletin ahead of Stats NZ’s release.

At the end of June about 1.7 million New Zealanders were having their wages part-paid by the Government but this has since dropped to about 500,000 as the original subsidy scheme ended and tougher terms kicked in.

The New Zealand Institute of Economic Research said in June that the consensus forecast was that unemployment would climb to 8.2 per cent in March, before dropping back slightly to 7.2 per cent in March 2022.

Concern about unemployment appears to be running high.

A Horizon poll last week indicated that almost 300,000 people expect to lose their jobs in the coming year and of those people about 83 per cent thought they would find it difficult to find another.