Tuesday, August 3, 2010

Forecasters expecting jobless rate to rise

Economists expect the June quarter's unemployment rate, due on Thursday, to retrace some of the March quarter's jaw-dropping decline from 7.1 to 6 per cent.

The consensus among forecasters is that the unemployment rate will rise to 6.4 per cent, reflecting a rise of 0.4 per cent or 8700 in the number of people employed.

That would represent a slowdown in job growth from the outsized 1 per cent increase recorded in the March quarter.

Business sentiment surveys support the big-picture conclusion that the employment cycle has turned into a recovery phase.

The Institute of Economic Research's quarterly survey of business opinion has recorded steadily rising reported employment levels for a year now, while hiring intentions are slightly above their long-run average.

ANZ chief economist Cameron Bagrie said the survey's findings suggested continued modest improvement in employment, while the National Bank's business outlook survey indicated the possibility of a more sizeable increase, in spite of declining hiring intentions since May.

ANZ is picking an unemployment rate of 6.3 per cent.

Bank of New Zealand head of research Stephen Toplis said that with the Reserve Bank seeming to have relaxed the urgency with which it intended to raise interest rates, all eyes would be on Thursday's data to see if they corroborated the bank's newfound pessimism.

But Statistics New Zealand's household labour force survey, the official measure of unemployment, has been erratic of late. Since June last year it has recorded unemployment rates of 5.9, 6.5, 7.1 and 6 per cent.

"This means that two of the four largest movements in the [24-year] history of the series have occurred in the last year. Given this degree of volatility, almost any outcome should be taken with a pinch of salt, especially by policymakers," Toplis said.

BNZ's pick for the unemployment rate is 6.3 per cent.

Westpac research economist Dominick Stephens is forecasting 6.2 per cent. A lot depended on the reason for the exceptionally steep fall recorded in the March quarter, he said.

It could have been a sampling error - always a possibility when extrapolating from a survey, even a large one like the labour force survey which covers about 30,000 people - or problems with seasonal adjustment.

The normal pattern is for a rise in employment in the December quarter, to do with the holidays and seasonal work in agriculture, which is then reversed in the March quarter, a pattern the statisticians adjust for.

But this year it broke down. The number of people unemployed did not rise as usual in the March quarter. It fell 5400 in raw or unadjusted terms. The average for the past 25 years has been an increase of 11,000.

If the March number was a statistical aberration, as many market economists believe, an upward correction in the June data can be expected.

However, the other possible explanation for the March quarter's surprise, Stephens said, was that forecasters got it badly wrong and the household survey correctly reported what had happened.

"After all, the consensus of New Zealand economists has a poor record in forecasting unemployment, with a consistent bias towards forecasts that are too high," he said.

"Perhaps employers are finding it easier to find workers now, whereas employment growth was hamstrung by a shortage of workers in the last decade."

The Department of Labour reports that the number of skilled jobs advertised online rose 10 per cent in the June quarter, continuing a year-long improving trend. But skilled job ads remain 31 per cent below their peak in March 2008.


6 per cent - Unemployment rate in March quarter, down from 7.1 per cent in the December quarter.
6.4 per cent - Consensus forecast of unemployment rate for June quarter.

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