Employment is near its maximum sustainable level, the Reserve Bank reckons.
It is a crucial judgment because the Policy Targets Agreement that new governor Adrian Orr and Finance Minister Grant Robertson signed six weeks ago adds the objective of contributing to maximum sustainable employment, to sit alongside the longstanding objective of price stability.
"Contribute", not deliver. As chief economist John McDermott said in a speech last month, there are widely recognised limits to what monetary policy can do over the long run.
"We have some influence over the degree to which the unemployment rate, as just one example, deviates from its underlying trend. But ultimately that underlying trend is determined by factors outside of our ability to influence, that rely instead upon the age and skills of the population, the efficiency with which jobs are matched to available workers, and the nature of employment regulation."
The "sustainable" qualification might look like a nod in the direction of the concept of "Nairu" — the non-accelerating inflation rate of unemployment. That measure represents the level of unemployment consistent with stable inflation in the short to medium term.
It embodies the idea which has been around for 50 years now, that any tradeoff between unemployment and inflation can only be temporary. In the long run, you cannot buy more jobs by tolerating more inflation.
So what is the magic number, the unemployment rate which, if we linger below it, will see inflation take off? The Reserve Bank seems to doubt that there is one. At least the Nairu idea gets short shrift in the latest Monetary Policy Statement's (MPS) discussion of the range of indicators it looks at when assessing the state of the labour market.
• 113,000 people are unemployed
• 119,000 are underemployed
• 105,000 are in the potential labour force
• 67.7% of people aged 15-plus are employed
Research the Reserve Bank published in March concluded that as of last September — the end point of the period covered by its modelling — estimates of the Nairu centred around 4.7 per cent. But it emphasised that there is a wide margin of error or uncertainty around that.
Indeed, yesterday's MPS says the bank's current estimates of the Nairu range from 3.5 to 5.3 per cent.
But it adds that that sort of uncertainty range also applies to the concept of potential output — a kind of speed limit for economic growth, beyond which inflation is liable to take off — which has long been central to the way inflation-targeting central banks set policy, and to which the state of the labour market has always been fundamental.
McDermott warned that focusing on one indicator like the unemployment rate can be misleading.
"For example, a fall in the unemployment rate could be the result of an increased demand for labour — typically reflecting a strong economy — or the result of people dropping out of the labour force altogether because they are unable to find a job and have become discouraged. These different causes have very different implications for how the labour market is evolving and would therefore have very different implications for monetary policy," he said.
To count as unemployed, you need not only to be out of work, but actively seeking a job (which means more than just scanning job advertisements) and available to start one. There are 113,000 people in that category.
Statistics NZ also provides wider measures of slack in the labour market. Another 119,000 people are classified as underemployed, that is, part-timers who want to and could work longer hours.
And there are another 105,000 classified as in the potential labour force, who either say they want a job but are not actively seeking one, or are currently not available, but will be within four weeks.
That adds up to 337,000 potential workers the statisticians call underutilised and they represent 11.9 per cent of the expanded definition of the labour force.
Among the suite of labour market indicators the bank watches is the employment rate, which is the proportion of the population aged 15 or older who are employed. It currently stands at a record 67.7 per cent (the third highest in the OECD).
But, like the unemployment rate, it is also affected by the labour force participation rate, which is the proportion of the working age population either in work or actively seeking work.
At 71 per cent it is also historically high. How much higher it could go is a key question when assessing where maximum sustainable employment sits.
As for the potential labour force (the numerator of that underutilisation rate of 11.9 per cent), the bank notes that it has been high since 2010 but has recently fallen, "suggesting little additional spare capacity remains via this channel".
"As with the underemployment rate the potential labour force is less well correlated with wage growth than the headline unemployment rate, suggesting less weight should be put on this metric," the bank says.
In any case, how effective can monetary policy be in sustainably reducing that number of 337,000 potential workers going spare?
While some unemployment is cyclical and might yield to monetary policy easing, some is structural and reflects factors like the demographics of an ageing population, or globalisation or technological change.
A very rough proxy for the cyclical component is the share of the unemployed who have been out of work for between one month and a year. People in that category currently represent 2.6 per cent of the labour force, which is close to the average rate since 2000.
What the Reserve Bank does affects economic demand and output, which in turn affects employment, which in turn affects wages, which in turn affect consumer prices.
But the magnitude of these effects all along the chain is not fixed and can be tricky to estimate. We are not talking about immutable laws of nature here. The past need not be a reliable guide to the future.
The bank says it is working on better understanding these dynamics and makes a plea for more granular and timely statistics.
In the meantime, Orr's conclusion that "we are there or thereabouts" on maximum sustainable employment seems fair enough.