Liam Dann 's Opinion

Business editor of the NZ Herald

Liam Dann: Unemployment - the stat that sinks govts

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Imagine losing your job. It is a dreadful thought for anyone with children or a mortgage. Or for anyone with hopes and dreams of achieving financial security, a nightmare, a devastating blow to self-esteem.

Unemployment is the ugliest of the economic statistics we regularly dissect to gauge the nation's economic health.

Unlike other indicators such as inflation or GDP, it doesn't spread the pain across the population.

If your number's up then you bear the disproportionate brunt of the economic downturn.

And then it still makes things worse for the rest of us. Higher unemployment means the Government takes less money in taxes, pays out more on welfare and the increased demand for jobs puts downward pressure on wages. Oops, the kids are off to Australia, oh dear.

Attempts to break the cultural cycle around long-term unemployment are also stymied and another generation of kids is condemned to grow up in poverty ... and so on.

Never mind, says John Key, who described yesterday's small increase to a rate of 6.8 per cent as a "technical rise" and pointed the finger at the Christchurch quake.

One might point out that the "technical rise" of 0.1 per cent in the June quarter still represented some 2000 people becoming unemployed.

So 2000 people who, even if they've since found new jobs, have had their lives turned upside down since March. Maybe that's a bit unfair on the Prime Minister. Key was presumably talking in a macro-economic context - as economists and business writers often do.

But even if you do put Christchurch to one side (which you can't in the real world) and talk statistics, the latest unemployment figures offer no sign that the economy is in any kind of recovery mode.

That surely is a problem for Key.

New Zealand was lucky enough to go in to the financial crisis with a historically low unemployment rate - about 4 per cent for the June 2008 quarter.

Unsurprisingly the rate spiked sharply as the global market tanked and business confidence plummeted. It peaked at 7.3 per cent in December 2009. Since then it has been a bumpy ride quarter to quarter - so much so that there have been times the economists have questioned the data.

As we moved out of recession the rate dropped sharply back to 6 per cent for the March 2010 quarter - cruelly suggesting the worst of the downturn might be over.

It bounced back to 6.9 per cent in the next quarter and has been up and down around those levels ever since.

So yes, Key can safely downplay the latest number in isolation - even against economist expectations that the rate was going to fall in the last quarter.

But we are clearly in another trough.

Thanks partly to the quake and partly to the fear the European crisis started to generate late last year the data is moving in the wrong direction again.

The point is that the troughs keep coming and there is no circuit- breaker in sight. We're treading water and the Government is mostly doing a very good job of reminding us that it could be worse.

Take a look at Spain or Greece, where the unemployment rate runs close to 25 per cent, and you'll see real anger on the streets.

But National doesn't believe that governments create jobs. It is not offering any great circuit-breaker for this economic cycle.

National's aim is to create an environment which business likes and encourage the private sector to get on with the job. Politically they are leaning on the fact that the flat economy brings low inflation and low interest rates. Keep your job and you'll be all right.

National only have the luxury of running this strategy as long as unemployment stays relatively steady. Unemployment is the statistic that sinks governments.

Behind the scenes they won't have been happy at all about Thursday's numbers.

On Twitter: @liamdann

- NZ Herald

Liam Dann

Business editor of the NZ Herald

Liam Dann is the Business editor of the New Zealand Herald, overseeing all our business content in print and online. He has been a journalist for 20 years, covering business for the last 14 of them. He has also worked in the banking sector in London and travelled extensively. His passion is for Markets and Economics, because they are the engine of the New Zealand economy.

Read more by Liam Dann

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