Covid confusion as UR falls!
- A first glance the labour market gets off lightly from Covid-19. The unemployment rate fell to 4%. It’s impossible to believe the unemployment rate fell during the greatest crisis since the great depression. It didn’t.
- The actual picture differs vastly from the unemployment rate, which suffered from people not being able to actively seek work during lockdown. The underutilisation rate jumped, and total hours worked plunged, by record rates over the quarter.
- The unemployment rate will jump in the September quarter, and the RBNZ knows it. More monetary policy stimulus is coming.
At first glance the labour market looks to have come through the Covid-19 lockdown period unscathed. The unemployment rate actually fell, yes that’s right fell, to 4% in the second quarter. The market consensus had expected a jump to 5.5% and we were expected a smaller, but still a decent lift to 5.2%. But the June quarter unemployment rate misrepresents the actual hit to the market. That’s because the lockdown threw up a few curve balls when StatsNZ collected the data. To be counted as unemployed someone must be actively seeking paid employment. It was impossible to actively seek anything during lockdown. Many people who would have typically been counted as unemployed were simply not counted in the labour force. Also softening the blow was the Government’s temporary wage subsidy, which bandaged over some of the damage.
Some of the underlying measures provided a better account of what the lockdown did to the labour market. And StatsNZ attempted to adjust the unemployment rate to account for difficulty seeking work. An adjusted unemployment rate of 4.6% was estimated. The underutilisation rate – a broader measure of slack in the labour market than the unemployment rate – jumped by a record amount to 12% (from 10.4%). Total hours worked reported by respondents in the HLFS were 9.1% lower than a year ago as the lockdown prevented many from being able to work. In contrast, the Quarterly Employment Survey’s (QES) measure of total weekly paid hours fell by a more modest 3.4% in the quarter. Because many employers keep paying wages with the help of the wage subsidy.
Importantly, the June quarter does not tell us that the NZ economy has dodged a covid-19 bullet. The labour market is expected to deteriorate further from here. The Government’s wage subsidy is due to wrap up in the coming weeks. At this stage there is no sign the wage subsidy will be repeated in its current form, unless NZ is forced into another period of Covid-19 lockdown. The sugar rush of post lockdown spending in recent months is likely to fade. And surveys of business confidence still show that more firms than not intend to cut headcount. We expect the unemployment rate will peak at the end of the year.
For the RBNZ, they are well aware of an expected further deterioration in the labour market. The Bank will continue to keep the stimulus coming. Next week we expect the RBNZ’s to increase the cap of its LSAP programme as part of the August Monetary Policy Statement. Beyond that, more stimulus may be needed. And the Bank will provide an update next week on the potential further tools that may be deployed if needed.
Detail looks much more dicey
The June quarter has thrown up plenty of unexpected results. But deeper analysis done by StatsNZ illustrates a labour market that deteriorated over the quarter. Around 650k people were either away from jobs, worked fewer hours than they wanted, or were less active over the quarter. More importantly, StatsNZ put together a weekly unemployment series to capture the trend in the data as NZ moved through Covid-19 alert levels. On a weekly basis the unemployment rate is volatile and probably not too reliable – also the data is not seasonally adjusted. However, what the data shows is a clearly increasing trend in the unemployment rate. During the height of lockdown NZ’s unemployment rate was estimated to be around 2.7% as many could not actively seek for work. In contrast, by the time NZ was in alert level 1 the unemployment rate had reached 4.9%. The unemployment rate will be higher in the September quarter.
The service industry has borne the brunt of the nationwide lockdown. And for the same reasons male employment was hardest hit in previous crises, women are especially vulnerable this time around. Because over 60% of sales workers and over 70% of hospitality workers are female. Today’s labour market report reflects lockdown has disproportionately impacted the workforce. The female underutilisation rate shot to 14.9%, up from 12.7% the previous quarter (+29,000 more women underutilised), and the unemployment rate rose to 4.4% (+1,000 more women unemployed). The numbers for men were more modest. More striking is the gender breakdown of those no longer employed. Employment fell 0.4% over the period, which equated to an 11,000 fewer people in paid employment. And of those 11,000, 10,000 were women. That’s 90%! While we don’t quite believe the numbers, the shot to women was bullseye.
Because of the fiscal support to date, the numbers could have been worse. The wage subsidy has helped many businesses remain in business, and employees remain employed. But for others, the subsidy pay-out may just be delaying the inevitable. Once the lifeline comes to an end, job losses will surely mount. And there’ll (still) be a pinkish hue to the numbers,
Wage growth muted
Wage growth largely vanished in the June quarter. For one, the current climate isn’t conducive to wage bargaining power for employees. In some cases, some staff may have had to agree to temporary wage cuts. The private sector LCI recorded only a modest 0.2% increase. And the June quarter included the latest large hike to the minimum wage to $18.80/hr. In annual terms, wage growth eased to 1.7%, barely above inflation over the quarter.