Baffling unemployment figures in New Zealand

The New Zealand economy Q3 2021 labour market data published today was simply bizarre and cannot be maintained. Below is a summary of the data:

Unemployment rate is now at a 14-year low of 3.4% which is well below the NAIRU which is estimated to be around 4.5%. Consequently the labour cost index has increased annually by 2.5% which is well above the 2% considered consistent with the Reserve Bank of New Zealand (RBNZ) meeting its inflation target of between 1% – 3%. With inflation already at 4.9% you can be reasonably certain that the RBNZ will be tightening the OCR (interest rate) on the 24th November.

Despite having over a third of the country in lockdown for half the survey period annual employment growth increased to 4.2% from 1.6%. The increase was driven by full time positions – 2.3%. Why is this the case?

  • Businesses are afraid of losing staff when COVID restrictions are lifted
  • Demand for labour in growth industries cancels out those jobs lost in affected sectors
  • The wage subsidy is keeping people in jobs
  • The government is taking on a lot of staff – contact tracing and health sector.
  • Construction industry is booming

Some key questions to be asked:

How long will the COVID workforce be maintained?
What impact will the removal of the wage subsidy have (1.27 million jobs are covered by it)?

With this added pressure on inflation will the RBNZ raise the OCR by 50 basis points?

Source: BNZ ‘Maximum unsustainable employment’ 3rd November 2021

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