KEY POINTS:
Unemployment statistics have become one of the most important indicators as far as the economy is concerned because any further job losses will prolong the downturn.
Based on this assessment, the recent rise in unemployment is not good news, particularly as high levels of personal debt will put
enormous pressure on individuals who lose their jobs.
The New Zealand labour market has held up remarkably well although recent statistics, which are supported by anecdotal evidence, have been negative.
The country's unemployment rate rose from 3.9 per cent to 4.2 per cent in the September quarter and Michael Hill told shareholders at his recent annual meeting that the company usually receives only four or five applications for part-time Christmas work in Auckland, but there were 80 applications this year.
The situation in the United States is deteriorating rapidly with Department of Labor statistics showing that unemployment surged from 6.1 per cent to 6.5 per cent in October. The total number of unemployed increased by 603,000 to 10.1 million during the month and in the 12 months ended October US unemployment rose from 7.2 million to 10.1 million.
The sectors most adversely affected are building, retail and financial services. The unemployment rate among government and mining workers remains extremely low.
Rising unemployment will be a major issue for the incoming US President but the 6.5 per cent rate is still well below the 10.8 per cent reached in 1982.
In Britain, where figures are compiled on a quarterly basis, the unemployment rate increased from 5.2 per cent to 5.7 per cent in the June to August period. Building, retail, hospitality and financial services were the worst affected sectors.
Unemployment in Japan has been traditionally low and the September rates dipped to 4.0 per cent from 4.2 per cent in the previous month. However, the Government said there were only 84 jobs for every 100 applicants, the lowest ratio since August 2004.
Unemployment in the European Union is high because a number of countries have unemployment rates in excess of 7 per cent. These are Spain (11.9 per cent), Slovakia (10.0 per cent), France (7.9 per cent), Hungary (7.9 per cent), Portugal (7.3 per cent) and Germany (7.1 per cent).
A number of other countries have had sharp increases in unemployment over the past 12 months including Ireland and Latvia. Female employment across Europe has remained relatively steady but unemployment rates for males and the under-25 age group are rising.
The latest European Commission economic forecasts, which were released on November 3, stated that "labour market developments are forecast to weaken notably during the coming two years, as firms react to weaker demand outlook, tighter financial conditions and some acceleration in labour costs".
The Commission expects EU unemployment to increase to 8.4 per cent next year and 8.9 per cent in 2010. The worst affected countries are anticipated to be Latvia, Lithuania, Spain, Estonia, Britain, Ireland, Denmark, Sweden and France.
The Australian Bureau of Statistics recently announced that the country's seasonally adjusted unemployment rate was 4.3 per cent in October, unchanged from 12 months earlier. The unemployment rate in Western Australia is 2.2 per cent, the Northern Territory 3.0 per cent, Tasmania 3.5 per cent, Queensland 3.8 per cent, Victoria 4.4 per cent, New South Wales 5.2 per cent and South Australia 5.3 per cent.
The OECD believes that Australia has more problems with labour shortages than unemployment. In its latest report on the country, which was published last month, the OECD concluded that these labour shortages could be reduced by raising the eligibility age for superannuation from 55, providing more affordable care facilities for workers' children, raising immigration and cutting taxes to encourage low-skill workers to enter the workforce.
Although the OECD believes Australia has a labour shortage, most forecasters are expecting the unemployment rate to increase. The latest government forecast is for unemployment to be around 5 per cent in mid-2009 while private sector economists anticipate the rate will climb to nearly 6 per cent over the next two years.
This would be well below the 10.8 per cent reached in August 1993. An increase in unemployment to this level would be disastrous because total personal debt has surged from just A$214 billion ($250 billion) in August 1993 to A$1.269 trillion at present. Three of the more important New Zealand economic indicators are housing, retail sales and unemployment, which lags the other two.
Housing began to slow in mid-2007 while retail sales started to weaken in the March 2008 quarter. Real gross domestic product (GDP) also contracted by 0.3 per cent in the March 2008 quarter. New Zealand's unemployment numbers, which are released on a quarterly basis, increased to 90,600 in September compared with 85,000 in June and 75,500 in September 2007. Our 4.2 per cent seasonally adjusted unemployment rate compares with the OECD average of 6.0 per cent.
In the September 1991 quarter, which had the highest unemployment rate over the past 30 years, the total number of unemployed was 175,000 and the unemployment rate reached 10.9 per cent.
The main features of the latest labour forces figures are as follows:
* Male unemployment has risen by 31.1 per cent over the past 12 months and female by just 8.2 per cent.
* The highest unemployment rate is Northland with 6.5 per cent and the lowest the Otago region with 2.7 per cent.
* In the past 12 months unemployment numbers have risen by 17.0 per cent in Auckland and by 21.6 per cent in the rest of the country.
* The biggest jumps in unemployment have been in the 20-24 year age group followed by the 25-29 group.
* The biggest job losses in the September 2008 year were in the agriculture, forestry and fishing sector, construction and the wholesale and retail trade.
* The unemployment rate amongst Europeans is 3.2 per cent, Asians 4.7 per cent, Pacific peoples 7.6 per cent and Maori 9.3 per cent.
Any further increase in unemployment would have a negative impact on the housing market, consumer confidence, the retail sector and the overall economy, mainly because of the high level of personal debt.
Household debt has risen substantially since unemployment peaked at 10.9 per cent in September 1991. For example:
* Total household debt has surged from just $26.7 billion to $173.8 billion.
* Household debt has increased from 60 per cent of nominal disposable income to 161 per cent.
* Debt servicing has risen from 8 per cent of nominal disposable income to 14.6 per cent.
The Treasury is forecasting unemployment to peak at 5.1 per cent in 2011 whereas the Reserve Bank is expecting it to rise to 5.8 per cent by March 2011.
One of the major objectives of the new National Government must be to boost consumer income and confidence, particularly before the all-important Christmas retail period, and then curtail unemployment growth.
If the new Government can achieve these objectives then a severe economic downturn should be avoided.
Conversely, if unemployment continues to rise, then the outlook for the economy is less attractive, particularly for the housing and retail sectors.
Disclosure of interest: Brian Gaynor is an executive director of Milford Asset Management. bgaynor@milfordasset.com
