Liam Dann: Economic pain about to get real as job losses mount

White-collar workers may be on the front lines of this recession.

OPINION:

News headlines about job losses are coming more frequently now.

MediaWorks and Today FM grabbed the spotlight on Thursday but Sky TV also announced 170 job cuts, just a day earlier.

The week before, The Warehouse announced 340 jobs were going, Xero announced 800 a couple of weeks earlier and, of course, the Auckland Council, under its new austerity regime, is expected to cut hundreds of workers.

In the US we’ve seen tech companies and banks shedding tens of thousands of jobs as they brace for recession.

Unfortunately, we’re going to have to get used to these announcements.

They are unsettling, even after months of building expectations about the inevitability of an economic downturn.

If the economic rebalancing act follows the Reserve Bank’s (RBNZ) script, we are likely to see the number of registered unemployed people rise by 54,000 in the next 12 months.

That’s a lot of people with their lives turned upside down.

It seems terrible to look at it like that - although it’s just the maths on the unemployment rate rising from where it is now, at 3.4 per cent, to where the RBNZ forecasts it will be by the end of March next year, 5.3 per cent.

According to StatsNZ, the 3.4 per cent unemployment rate, as of the end of 2022, equates to 99,000 people.

That means there will be about 153,000 registered unemployed if the rate reaches 5.3 per cent.

The Reserve Bank actually forecasts unemployment to peak at 5.7 per cent by March 2025, before falling again.

That’s a total of 165,000, or around 66,000 people joining the dole queue across the next two years.

I do that calculation because it can be all too easy to talk about percentages in economics. If you count the actual number of people involved, it is sobering.

In part, this is what the ongoing toll of Covid-19 looks like. We spread the pain and delayed it with stimulus through the past two or three years. But we don’t get to avoid it.

To be fair, we were already due for a cyclical downturn when Covid arrived. We hadn’t had a recession for more than a decade and interest rates were already on track to rise, putting a squeeze on consumers and businesses.

Unemployment was sitting around 4.2 per cent pre-pandemic and may well have tracked up towards 5 per cent.

The pandemic happened and there is no point worrying about what might have been.

At 5.3 per cent, unemployment will still be regarded as moderate by recent historical levels.

If this all pans out as hoped, and inflation falls away as it is supposed to, we could call it a soft landing.

After all, the last time unemployment was sitting at 5.3 per cent was December 2016 - around the time New Zealand was being lauded as a rock star economy.

But when it comes to our perception of an economy, the direction of travel, and the speed at which we are travelling, makes a big difference to confidence.

In 2016, unemployment was on the way down from a protracted post-Global Financial Crisis period where it had regularly popped above 6 per cent.

In the aftermath of the Global Financial Crisis, unemployment peaked at 6.6 per cent in December 2009 (rising from 3.4 per cent in December 2007).

Obviously, that is a lot worse than is forecast this time.

It reflects the deeper recession and more widespread job losses we went through then, which we have hopefully avoided post-pandemic.

But the pace at which unemployment is expected to rise is similar to 2009, which was an extremely tough year for the economy.

The pace of the rise makes a difference from an individual point of view because it is about the number of workers suddenly coming onto the market at once.

If your specialist sector is suddenly flooded with hundreds of excess workers then it is much harder to avoid the dole queue.

Weirdly, given the labour shortages being faced by businesses, it looks like there will still be plenty of jobs at the lower-paying end of the market, in retail and hospitality.

There will also likely be ongoing work in roading and construction - especially now we have such major rebuilding going on after the recent floods and cyclones.

Workers will still be in demand to rebuild post-cyclone damage - repairs on this section of State Highway 25 near Opoutere is due to start this month. Photo / Waka Kotahi

But in the middle bracket of white-collar, corporate staff we are going to see a squeeze go on.

Many office workers with young families and large mortgages will be feeling especially anxious right now.

I still remember those feelings from the days of the Global Financial Crisis in 2008 and 2009.

I’m sure older readers will remember the concerns of the late 1980s and early 1990s.

There is usually a stage of life where we are forced to stretch ourselves financially in order to ensure our future stability.

Young people shouldn’t be punished for that.

We must do what we can to avoid putting too much of the burden of paying for the pandemic on any one part of the population.

In some sectors, labour shortages are going to persist.

Hopefully, with the right policies in place, the economy will be resilient enough to offer people new paths, through retraining and adapting to new professions.

It’s going to get tough and that means ensuring there is adequate support for all those affected.