Unemployment dropped back under 5 per cent in the December quarter, prompting the country’s largest bank, ANZ, to immediately scrap its forecast for a further cut in interest rates.
BNZ, which had already abandoned expectations of another rate cut, responded by becoming the first major bank to officially forecast a rise in the Official Cash Rate, although not until next year.
The shock drop in the seasonally-adjusted unemployment rate from 5.3 per cent to 4.9 per cent reported by Stats NZ confounded the most optimistic expectations of economists, leaving ASB “gobsmacked”.
Bank economists had already been rapidly dialling back their expectations of how high unemployment might go this year but had still expected a modest increase in the jobless number in the final three months of 2020.
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Instead, unemployment dropped by 10,000 to 141,000, after the largest ever jump in the preceding September quarter.
There have been concerns that the impact of Covid on the jobs market has been felt mostly by women and lower-paid workers.
But in the December quarter the number of jobless men and women each declined by 5000.
The decrease in unemployment was not the result of more people giving up looking for work.
The number of people classed as “not being in the workforce” fell by 3000 over the quarter and there was a net increase of 4000 in the working age population, with the seasonally adjusted number of people in employment jumping by 17,000.
ANZ described the figures as “unambiguously better”, saying it no longer expected the Reserve Bank to cut the official cash rate again this cycle.
BNZ research head Stephen Toplis said there was still “massive uncertainty” as to when and by how much the OCR would increase from its current level of 0.25 per cent.
But he said the bank was “formally building in a first rate hike in May 2022” into its assumptions.
Westpac economist Michael Gordon agreed the unemployment surprise would be very important for the Reserve Bank.
“The surging housing market, surprisingly high inflation, and now falling unemployment all make it obvious that the combined efforts of the Government and Reserve Bank to support the economy through the Covid shock have had a much more powerful effect than anticipated,” he said.
Soaring growth in areas such as construction had countered the weakness in sectors of the economy affected by the border closure, calling into question how much ongoing stimulus would be needed, he said.
The number of “potential jobseekers” crashed by 13,800 to 74,700 during the quarter, suggesting employers will face growing difficulties finding staff, and average ordinary hourly earnings rose 4.2 per cent to $34.14, indicating more inflation could be in the wings.
Federated Farmers said finding and retaining staff was a headache for its members.
It released a survey showing confidence had bounced back to “pre-Covid” levels among its members but a net 36 per cent of respondents reported it had been harder to recruit skilled and motivated staff.
In another encouraging sign for job-hunters, the “under-utilisation” rate, which measures whether people are working as many hours as they want to, fell to 11.9 per cent from 13.2 per cent.
The icing on the cake was that Stats NZ reported that more people were feeling secure about their jobs, with 79 per cent of respondents feeling there was, at worst, a low chance they would lose their jobs in the next 12 months, up from 74 per cent in the September quarter.
Stats NZ work and wellbeing manager Becky Collett said the new figures meant New Zealand had the fifth-highest employment rate among 15 to 64-year-olds in the OECD (Organisation for Economic Co-operation and Development).
But while the number of people in work was up on a year ago, pre-Covid, not all workers would have fared evenly, with jobs in construction up and “tourism related industries down”, she said.
Finance Minister Grant Robertson said the figures were positive and the Government’s focus would stay on “keeping the economy moving in the right direction and building back better” by investing in education, skills and training.
Social Development Minister Carmel Sepuloni said the task of helping people who had lost their jobs due to Covid was far from over.
The unemployment data may leave bank and government economists having to significantly revise their forecasts of where the economy is tracking.
Kiwibank economists had expected the December-quarter unemployment rate to increase from 5.3 per cent to 5.4 per cent, while BNZ had expected it to come in at 5.7 per cent and Westpac and the Reserve Bank had forecast 5.6 per cent.
Infometrics economist Gareth Kiernan had been tipping the unemployment rate would peak at 6.6 per cent during the first half of this year but that was based on the assumption the December figure would come in at 6 per cent.
“Apart from a few more job losses in the tourism and retail sectors, our view is that we are pretty much through the worst of the downturn in the labour market,” he said prior to Stats NZ’s shock announcement.