Liam Dann: Unemployment fall a win for Government

Prime Minister Jacinda Ardern, with Finance Minister Grant Robertson and Consumer Affairs Minister in parliament this week. NZH pic Mark Mitchell

COMMENT:

Business confidence collapsed in the wake of last year's election result, it's now very clear that the economy did not.

Today's surprisingly strong employment data follows better-than-expected GDP growth in the second quarter.

Unemployment dropped to 3.9 per cent the lowest level since the start of the global financial crisis in June 2008, according to Stats NZ.

In other words current Finance Minister Grant Robertson is sitting on better employment data than Bill English did at any stage through the so called "rock-star economy" years.

In fact the quarter's employment rate rose to 68.3 per cent, the highest since the series began more than 30 years ago.

You could make the case — and the National Party probably will — that the new Government has inherited such a robust economy that it has performed well in spite of the Coalition's policies, not because of them.

Robertson for his part was careful not to over-play the strong numbers in his press release today — acknowledging that this kind of data can be fickle.

But, regardless, he must be happy with how the domestic economy is tracking a year into his first term.

Unemployment — like GDP growth — is one of the big top-line economic indicators that markets take seriously.

The kiwi dollar spiked almost US1c on the news — trading at US67.65 US cents at 5pm from 66.69 cents in the morning.

Currency traders are picking the low unemployment number means the next move by the Reserve Bank on interest rates will now be up (although still not for some time yet).
There are caveats to the good news around low unemployment though.

It does confirm business worries about staff shortages. Unemployment is now tracking so low that it probably represents a constraint on faster GDP growth.

But that's a preferable problem to companies laying off staff and an economy that's contracting.

If you took the hiring intention results recorded in business confidence surveys this year at face value then that would be happening already.

Perhaps it still will. Economists say the confidence surveys are so weak that they can't be ignored just yet.

But as time and the economy march on, the argument that the surveys are coloured by an entrenched political point of view starts to look stronger.

It's also worth noting that, despite record employment levels and decade-low unemployment, wage growth has remained subdued.

So while the employment trend is good for job security, it's not making workers much wealthier yet — especially as they face rising fuel bills.

The reasons for the low wage growth are complex and hotly debated by economists.
It seems likely the gig economy — the rise contract work, part-time work and the likes of Uber — may well be playing a part.

But there were also some very promising trends in the data, particularly a big fall in youth unemployment.

According to Stats NZ, 109,000 people were unemployed in the last quarter — 13,000 (10.5 per cent) fewer than in the June 2018 quarter.

Some 8000 fewer women and 5000 fewer men were unemployed. And for both sexes, this mainly reflected 11,000 fewer unemployed youth (15 — 24-year-olds).

There were 6000 fewer youth unemployed and not in education, which led to the "not in employment, education or training" (NEET) rate falling to 10.1 per cent.