Jobs growth will take time
Last week we learnt that during the June quarter the number of people in work in New Zealand fell by 2000 to deliver employment growth of just 0.6 per cent from a year earlier and cause a lift in the unemployment rate to 6.8 per cent from 6.7 per cent, writes Tony Alexander.
That is statistically-speaking the same as the peak rate of unemployment since the recession of 2008-09 or 6.9 per cent. Why is job growth so poor?
A key reason (and outcome) is clearly because growth in the economy overall has been weak. It is certainly true that after shrinking some 3.8 per cent over 2008-09 our economy is now 1.6 per cent bigger than it was before the recession started. But that means we have grown by only 5.6 per cent in almost three years or about 1.7 per cent a year on average. Given that the population has grown by about 2.7 per cent this means per capita gross domestic product growth of a miserable 2.9 per cent or about 0.9 per cent a year.
In the past year GDP growth was 1.7 per cent. But if we strip out the effect of production simply going into storage then growth was a low 0.3 per cent. In a nutshell, our economy is showing minimal growth and there are many reasons for that. One is that up until early this year the vast majority of people thought house prices would fall. So they held off buying and building and that pushed dwelling construction numbers to the lowest level in four decades.
Additionally, we have all seen some very bad news hitting our shores from overseas, and Europe in particular. The developments have been more than enough to make employers cautious about hiring people. In addition we have seen a reasonable deleveraging process in play here whereby households, banks, government, and businesses have been seeking to reduce their debt burden. That also means restraint in hiring.
The question is whether this restraint will continue. Eventually we will see good growth in all areas of employment related to construction as the Christchurch rebuild gets under way at the same time as a period of catch-up house construction gets cranking in Auckland. But until that happens I see nothing in front of me which suggests that our labour market will show much improvement in the very near future.
Specifically, the news from overseas remains bad, with Europe soon to report that it is back in recession, China's economy growing slower than expected, and America yet to seriously approach the issue of how to get its deficit under control and debt down without a huge and undesired automatic tightening of fiscal policy on January 1 next year.
Locally we can see the housing market turning upward but it is very much an Auckland affair with many parts of the country still lumbered with excess dwellings and reluctant buyers.
The high currency - which could easily go higher - is restricting many exporters including those in the tourism sector not benefiting from the near 30 per cent growth in the number of visitors arriving from China.
How to get those visitors to stay longer than three days and capture more of China's over one million millionaires is the big tourism sector challenge for the coming years as European, British, and North American markets are going to be weak.
Come next year I expect the small signs of tightening up in the labour market to become more apparent in the context of the post-earthquake rebuild and simple extension of time during which training will not have been done for/by a lot of people.
But for now, I expect jobs demand to still sit at weakish levels and that will constrain retail spending and act as a slight brake on housing.
Tony Alexander is chief economist at the BNZ.
The Southland Times