Jobless number a cold dose of reality

Revelations that Telecom is thinking of outsourcing hundreds of IT jobs and a higher-than-expected unemployment figure have come as a bit of a splash of cold water.

Most economic commentators - including the Treasury, the Reserve Bank, and indeed the Government itself - had been predicting unemployment to peak at 7 per cent or below in March.

Instead, we've got 7.3 per cent for the December quarter, which tends to point to unemployment still being on the up.

At the half-year economic and fiscal update in December, Treasury reckoned it would top out at 7 per cent, while the Reserve Bank thought 6.6. The much higher figure might give governor Alan Bollard pause for thought on his plans to begin tightening monetary policy from April.

The figure might also come as a bit of a shock to Social Development Minister Paula Bennett and Prime Minister John Key, both of whom speculated before Christmas that we were through the worst on unemployment, and that better times were just around the corner.

Now, I know that conventional wisdom has it that unemployment always lags behind an upturn in the economy, but the increase could also indicate considerable employer uncertainty around the state of the economy and their own futures.

It was unfortunate for Telecom that its plans to offshore (or "best-shore'' in the appalling commercial jargon of the company) more IT jobs got leaked this week. But it does show that so far, none of the underlying fundamental problems attached to the economy have changed.

The Government knows this, of course, and we should get an idea next week what it plans to do about changing that. Parliament (finally) resumes, and Key is planning a meaty speech to mark the occasion, I'm told.

He's deliberately refrained from making any major statements on policy so far to date, and hasn't done a state-of-the-nation speech like Labour leader Phil Goff. Expectations are therefore quite high. 

He will need to address the unemployment issue specifically, or Labour will introduce it for him. Today Key's simply said the public "shouldn't panic'' about the rise because "unemployment always lags behind the real economy''.

Hmmmmm. While "don't panic'' is largely good advice for most situations, I'm not sure that's much comfort to any of the 18,000 people who have joined the dole queue in the last quarter. Presumably while their situation might be lagging behind the "real economy'', their mortgages and other bills most certainly aren't.

In the real world, unemployment is the real economy. It's certainly the economic statistic most of the public care about, since it directly affects them in a way GDP growth or the size of the current account deficit or gross national debt does not.

Most concerning in the unemployment numbers will be the 72,000 young people out of work, a rise of over six percentage points, and the rate of Maori unemployment hitting a whopping 15 per cent (the Pakeha rate is 4.6 per cent).

The increase in unemployment will increase pressure on the Government to do something, as the National Distribution Union has already demanded. There is no silver bullet, of course (and if the NDU can find one, it could let the US government know, since their unemployment is 10 per cent).

Still, it will hurt, particularly since National has made much of its youth employment opportunities packages in the past year. If anything, though, it tends to prove this kind of stuff just doesn't work. It's really only a stronger economy and confident employers that will deliver jobs, to young people or anyone else.

There is a certain symmetry in the numbers, too, which Labour won't overlook - the last time unemployment was this high was just before National got booted out of office the last time - June 1999.

Key's government will be fervently hoping the rate doesn't continue to climb, and that the recent slight rise in economic activity doesn't turn out to be a false dawn. Because even if it isn't really National's fault, it will be blamed in the long run.

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