New Zealand's unemployment jump set to be revealed

Monday, 3 August 2020

The wage subsidy scheme has softened the unemployment blow, economists say.

Updated labour market statistics due from Stats NZ on Wednesday are tipped to show a jump in unemployment.

The Household Labour Force Survey data will cover the June quarter, which includes New Zealand’s period of being in level 4 lockdown.

In the first quarter of this year, the unemployment rate was 4.2 per cent.

Economists are united in their view that it will increase from that, but predictions vary as to what extent.

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Bank of New Zealand economists said they had thought for some time that the quarter would not record an aggressive jump in unemployment.

More than 200 furloughed staff are losing their jobs at Flight Centre. The company has laid the blame on border closures, which have been in place longer than they expected, and the winding down of the wage subsidy.

“This is largely thanks to the monumental wage subsidy scheme that was quickly put in place in response to Covid-19.”

They said they expected to see unemployment increase to 5.9 per cent, a 2.1 per cent drop in employment. The data only counts the “unemployed” as being those who are actively seeking work.

The labour force participation rate would also drop to 69.8 per cent from 70.4 per cent, they said.

“The biggest risk is for a larger drop in the participation rate, which might have the jobless rate struggling to go much above 5 per cent.”

Kiwibank economists said the data would show job losses “in the tens of thousands”. They expected the employment rate to fall 1 per cent.

ANZ expected the unemployment rate to increase to 5.7 per cent but said that would understate the true weakness in the 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 said they expected to see employment fall by 1.5 per cent and the unemployment rate to rise to 5 per cent in the quarter.

“That’s far lower than our previous forecast, which was 7 per cent [unemployment], and could surprise financial markets. Our unemployment estimate is based on a range of indicators, but the most important is the number of people on benefits.

“On average over the June quarter around 183,000 people were receiving the Jobseeker Support benefit, an increase of 36,000 from the March quarter. Taken on its own, this would imply an unemployment rate of around 5.5 per cent. However, we suspect that this overstates the case a little, as the eligibility criteria for receiving the benefit have been loosened since the start of the lockdown in March.”

They said the rate would rise “much further” in the September quarter.

Infometrics picked an increase to 5.8 per cent.

“Job losses have continued to mount, but at a slower pace than we feared earlier in the pandemic. The wage subsidy has supported a large number of jobs in recent months, but we expect that once this support is removed, job losses will rise further,” economist Brad Olsen said.

“We will be watching the change in hours worked with interest to get an early gauge on activity levels across the economy, and to better understand how work for people in part-time employment is changing.”

His colleague, Gareth Kiernan, said the data on how much people are earning would show the impact of reduced pay during the lockdown period.

Westpac said the minimum wage increase in the quarter would have pushed the labour cost index up by about 0.3 per cent.