Unemployment jump puts pressure on RBNZ

A surprisingly large rise in the unemployment rate in the June quarter is putting pressure of the Reserve Bank of New Zealand (RBNZ) to stop hiking interest rates.

Many economists believe the central bank will hike up the official cash rate - now at 3 per cent - once more at its next policy review on September 16, then pause.

Some question that scenario and predict the monetary policy tightening from historic lows begun in June is now on hold.

The New Zealand unemployment rate rose to 6.8 per cent in the June quarter, reversing most of a sharp fall in the March quarter, according to the Household Labour Force Survey published today by Statistics New Zealand.

The New Zealand dollar fell immediately to US72.75c from US73.52c but consolidated at lower levels.

The 6.8 per cent unemployment rate was significantly higher than economists predicted and resulted from the number of unemployed people growing at a faster rate than the labour force.

In May, Statistics NZ stunned financial markets by reporting the March quarter unemployment rate fell 1.1 percentage points to 6 per cent. It was the first fall in the rate since the December 2007 quarter, and the largest fall since the survey began in March 1986.

"This rise in unemployment follows an unseasonal drop recorded in the March 2010 quarter and indicates a period of volatility in the labour market," Statistics NZ said today.

The RBNZ was expecting a steady unemployment rate of 6 per cent, but economists said it should now pause for thought.

"We believe the Reserve Bank should now be pausing. The domestic economic recovery is lacklustre and commodity price support is waning," said Goldman Sach JBWere economist Philip Borkin.

Westpac senior currency strategist Imre Spezier said the headline grabbing number raised questions about the quality of the survey and caused people to question if the Reserve Bank will hike, but the detail in the survey was positive.

"It has increased the chances of a pause next month but we still think they will go," he said.

To go in two quarters from an unemployment rate of 7.1 per cent to one of 6.8 per cent was more in line with history and consistent with other data on the economy, said Speizer.

Borkin said the headline unemployment number likely overstated the weakness in the labour market.

"The fall in employment was entirely driven by a 1.6 per cent quarter-on-quarter fall in part-timers. Full-time employment rose 0.2 per cent," he said.

Hours worked rose 0.6 per cent, suggesting that firms are looking to utilise more labour resources. The participation rate was unchanged 68 per cent.

Borkin sees a 60 per cent chance of a pause at the next review, and expects the official cash rate to stay at 3 per cent for the rest of 2010.

ASB economist Jane Turner still expected a rate increase in September, followed by a pause in October and December and was predicting a cycle peak of a 4.5 per cent, down from 5 per cent previously.

- NZPA

Dollar falls as unemployment up

The New Zealand dollar fell after unemployment data for the June quarter surprised on the upside after surprising on the downside last quarter.

Investors are scratching their heads but said the 6.8 per cent unemployment rate in the June quarter is consistent with a slow recovery and increased the chance that the Reserve Bank of New Zealand (RBNZ) will pause in its next interest rate review or the one after that.

The drop in the unemployment rate from 7.1 per cent to 6 per cent in the March quarter had been hard to reconcile.

The NZ dollar fell sharply on today's data from US73.57c to US72.75c but quickly consolidated and was at US72.95c by 5pm. It was US73.52c at 8am compared with US73.44c at 5pm yesterday.

"There was a big reaction immediately and then it stabilised quickly," said Imre Speizer, senior currency strategist at Westpac.

He said the headline grabbing unemployment number raised questions about the quality of the survey and caused people to question if the RBNZ would hike next month, but the detail in the survey was positive.

"It has increased the chances of a pause next month but we still think they will go," he said.

To go in two quarters from an unemployment rate of 7.1 per cent to one of 6.8 per cent was more in line with history and consistent with other data on the economy.

But the central bank was not getting traction with its monetary policy tightening because yields in the wholesale money market have fallen, rather than risen.

The two-year swap rate has fallen around 40 basis points since the RBNZ started tightening. It fell around five to seven basis points to 6.39 per cent today.

The NZ dollar also fell against the Australian dollar to be A79.68c by 5pm from A80.16c at 8am and A80.49c at 5pm yesterday.

It was at 0.5544 euro from 0.5558 yesterday, and 62.83 yen from 62.72.

The trade weighted index fell to 67.37 by 5pm from 67.68 at the same time yesterday.

- NZPA

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.

JOB NUMBERS

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.

Wages and salaries rising slightly, says Stats NZ

Salaries and wages are going up slowly, with a small rise in the June quarter showing employment is barely picking up.

The labour cost index (LCI) published by Statistics New Zealand (SNZ) today put the annual rate of salary and wage growth, including overtime, at 1.6 per cent, and 0.4 per cent in the June quarter.

This follows an increase of 1.5 per cent in the year to the March 2010 quarter, and a steady decline in the growth of salary and wage rates, including overtime, from a peak of 4 per cent in the year to September 2008.

The salary and wages rates went up for both the public sector by 2.1 per cent and the private sector by 1.5 per cent in the year to June.

The quarterly employment survey (QES), also published today, found an increase of 2.5 per cent in total paid hours in the year to June - the first annual increase in total paid hours after six consecutive quarters of annual decline.

And full-time employees rose by 1.3 per cent, increasing on an annual basis for the first time since the September 2008 year.

SNZ said the major contributors were the professional, scientific, technical, administrative, and support services; and the arts, recreation, and other services industries.

The average total hourly earnings rose by 2.1 per cent for the year, following an identical result in the year to March, which had been the lowest annual increase since the same increase in the December 2004 year.

SNZ said seasonally adjusted, total gross earnings rose 1.8 per cent for the June 2010 quarter, while seasonally adjusted paid hours went up 1.2 per cent.

- NZPA

Shortfall in migrants could cost NZ economy 'over $1b'

New Zealand is threatening to undershoot the number of migrants it needs to keep the economy healthy, say immigration consultants.

Immigration New Zealand has returned its lowest number of "expressions of interest", after a period of six months where selections have been around 30 per cent lower than previous years.

If the trend continues, less than 13,500 applications will be selected this year.

The numbers of skilled and business migrants finally approved could fall far short of the 27,000 to 30,000 people the New Zealand Residence Programme targets, an immigration commentator has said.

Mike Bell, who runs the online move2nz site, says this is the lowest selection since the present rules were introduced in 2005.

"At this rate, it suggests that an additional 5500 people would be required to meet the minimum numbers under the quota," said Mr Bell.

The direct financial impact on New Zealand of fewer skilled migrants coming could be a loss of more than $1 billion, because an average migrant family spends about $200,000 in New Zealand to start their new lives.

But other immigration observers say the impact could be greater, as it would leave New Zealand short of skills in vital industries and stall economic growth.

"This is worrying. There may be concerns for jobless New Zealanders but slashing skilled migration numbers is not the solution," said Dr Henry Chung, senior marketing researcher at Massey University.

Immigration expert Paul Spoonley says the global economic crisis has also resulted in a reduced number considering migration, and this could impact on migration numbers to New Zealand this year.

But head of Immigration Nigel Bickle says it is on track to meet immigration targets, despite the low selection on July 14.

Wage gap with Australia wider

Let open part of the conservation land like 1/4 or 1/8 for mining, increase job opportunity, boost the economy, attract more foreign investor, as the result Nz will be more powerful economically.

Australian workers are being paid even more than their Kiwi cousins since National became the Government.

The Dominion Post newspaper reported that while Economic Development Minister Gerry Brownlee was saying the wage gap had reduced since his party came into office, figures it obtained comparing average weekly earnings in November 2008 and February this year painted a different picture.

They showed New Zealand wages grew by 5.2 per cent compared to 6.17 per cent for Australia.

Australia's ordinary average wage rose from A$1165 to A$1243 ($1433 to $1529) while New Zealand's went from $891 to $947.

On yesterday's currency rates, the gap widened from about $540 a week in December 2008 to around $580 in March this year.

Australia weathered the global financial crisis in better shape than New Zealand, avoiding recession while New Zealand did not.

Yesterday in Parliament Brownlee said it would take time to work out exactly how much the gap would close by after the October 1 tax cuts, but the gap between the two countries "is certainly a lot less" than under Labour.

Closing the gap with Australia was something National campaigned on.

In a May speech reported by NZPA Labour leader Phil Goff ridiculed the Government's pledge to do that.

"To the contrary, wages have risen faster in Australia over the last year. Our unemployment is higher than Australia's by a significant margin for the first time in a decade."

Goff said while Australia was boosting employer contributions to superannuation the Government here had done the opposite.

Australia's top tax was higher than New Zealand and the reason New Zealanders were going to live there was wages, which the Government had not managed to lift.

He said GST, ACC increases, higher power bills, and increasing mortgage rates would also hit New Zealand workers.

At the time Finance Minister Bill English said Labour advocated more debt and higher taxes at a time of financial constraint.

- NZPA

Business confidence falls for third month

Business confidence has fallen for the third consecutive month, and has almost halved since reaching a decade high in February.

There was now a clear change of direction which was beyond what could be put down to "usual monthly volatility," the National Bank says in its latest business outlook survey.

Just 28 per cent of respondents expect business conditions to improve in a year, down 12 points from the previous month.

Leading the decline were the agricultural and manufacturing sectors with business confidence in those areas falling 14 points from June.

"We characterised last month's decline in confidence as the economy merely shifting from a gallop to a canter. Perhaps this month is seeing a shift from a canter to a trot."

Firms' own activity expectations fell seven per cent, but held up better overall, with 32 per cent of respondents expecting better activity in the coming year.

All sectors, bar manufacturing recorded declines in own activity reading.

Just eight per cent of respondents expected to hire staff in the coming year, a fall of five points.

The construction sector fared the best of all the sectors in this area, posting a four per cent increase in the month - something the bank says could be due to the numbers of employees who were moving to Australia, rather than a sign that things are expected to pick up.

Investment intentions fell five points, while profit expectations fell 10 points to a net nine percent of business who expect to see an improvement in their bottom line in the next year.

Interestingly, just 31 per cent of respondents expect to be putting prices up, down from 39 per cent in June, in the next year.

The result was surprising given the impending GST hike, the bank said.

"Perhaps this is an indication of the tough demand environment firms are facing, and the reality that there will be a lot of consumer resistance to price rises, no matter what the cause."

The bank said most respondents were resigned to the fact the Reserve Bank will lift the Official Cash Rate again tomorrow.

"But with signs that the economy is not surging away and momentum is levelling out, we find it difficult to envisage rates will move up every six weeks."

Weak pound lures Kiwi investment

New Zealand has climbed up the rankings of countries investing in Britain, taking advantage of a weak pound.

It was among the top 20 investors into Britain, ranking 16th - up from 19th last year, with 24 NZ companies setting up in Britain in the last year.

Inward investment from New Zealand bucked the global trend, which saw figures drop around the world.

The United Kingdom High Commission says the number of investment projects in Britain fell by 7 per cent last year but investment into Europe dropped by an average of 10 per cent and global investment flows declined by around 40 per cent.

Dollar figures for investment were not available but New Zealand firms had invested in 24 "projects" in 2009-10, up from 18 the previous year.

The UK High Commissioner to New Zealand, Vicki Treadell, said the strong results from New Zealand showed Britain was a natural European investment destination for New Zealand.

"For many Kiwi companies the UK is the best place to start their international business experience. We work the same way and talk the same language," she said.

"The continued strength of the Kiwi dollar, as well as the UK's overall attractiveness as a destination for foreign investment, means it's a great time for Kiwi businesses in the UK."

Leading the number of investment projects last year was the United States with 484, followed by Japan with 107.

The New Zealand dollar was worth 46.8p last night.

By Grant Bradley

Money: Cheques dying a slow death

New Zealanders wrote one-third fewer cheques last year than they did six years earlier, as consumers opted for quicker payment methods.

Latest estimates from the New Zealand Bankers' Association (NZBA) show cheques now account for just six per cent of all New Zealand domestic payments (excluding cash), and the rate in which they are declining is between seven and nine per cent per year.

Preliminary figures due out shortly show just 134,065,977 cheques were processed in New Zealand during 2009, down from 206,018,930 during 2003.

New Zealand Bankers' Association chief executive Sarah Mehrtens said consumers were increasingly swapping the "cumbersome" cheque book for the convenience and ease of electronic transactions.

Not only was swiping a card a lot quicker, it was also a considerably safer form of paying, she said.

Preliminary figures show eftpos use almost doubled in the six years to 2009, while internet banking trebled during the same period and last year overtook cheques as a more popular payment method.

Mehrtens said anecdotal evidence suggested cheques were most commonly used by people over 60 years of age, and mainly for paying utility bills.

Other significant users were businesses for payments such as supplier invoices and dividend payouts, she said.

Internationally there was a move towards phasing out cheques, with the United Kingdom and Ireland set to remove them from their economies by 2018, the association said.

Mehrtens said it was too early to say if, or when a similar move might be adopted here.

"As an industry banks are continually reviewing the range of payment methods available, and cheque payments are part of that process."

NZBA members were closely monitoring these developments and were "looking for lessons that may be applied to New Zealand," Mehrtens said.

Oil giants BP and Shell both said they stopped accepting cheques several years ago, while Foodstuffs, which operates Pak 'n Save, New World and Four Square, said the vast majority of its stores still accept this form of payment.

Progressive Enterprises said cheques accounted for less than five per cent of all transactions in stores.

The company has no plans to phase them out, a spokesperson said.

BP New Zealand spokesperson Neil Green said the company stopped accepting cheques eight years ago as the rate of use declined, coupled with the introduction of ATMs in stores.

The decision to stop accepting cheques also reduced the risk of fraud, he said.

Foodstuffs general manager of retail Rob Chemaly said most stores accepted cheques when provided with satisfactory ID and a fee of 25c.

Shell petrol stations no longer accept cheques and haven't done so for six years.

"One of the things that our customers value the most is speed of transaction - they quite rightly don't want to be standing in a queue waiting for people to fill out cheques, write their details on the back, provide ID and fill out the stubs.

"Our customers want to get in, get what they want and get out quickly to get on with their day," spokesperson Jonathan Hill said.

Interesting cheques are the only payment method the Department of Building and Housing accepts for residential tenancy bond payments, but is set to move to an online system in the next year or so.

Spokesperson Jeff Montgomery said the move was purely customer driven.

"The feedback we have had from landlords is that the only reason they use their chequebook is for bond payments."

Montgomery said the DBH used to accept cash for bond payments, but this posed a significant security risk.

2009 preliminary figures

Eftpos: 1,191,761,110
ATM: 207,653,954
Credit card: (all NZ issue credit cards used globally): 242,352,783
Credit card: (all credit card transactions in NZ): 248,452,661
Internet banking: 143,074,467
Electronic credits: (includes automatic payments and direct credits): 366,059,140
Direct debits: 120,231,525
Cheques: 134,065,977

By Susie Nordqvist

Inflation now 1.8pc - lower food prices offset tobacco hike

The consumers price index (CPI) rose 0.3 per cent for the June 2010 quarter, Statistics New Zealand said today, which means annual inflation is now running at 1.8 per cent.

This morning's inflation numbers are slightly lower than what many expected, with economists and the Reserve Bank picking 0.5 per cent for the quarter - a 2 per cent annual inflation rate.

This follow a 0.4 per cent rise in the March quarter, when the CPI annual rate rose 2 per cent.

Higher tobacco, transport, and housing prices were partly offset by lower food prices prices in the latest figures.

Statistics NZ manager Chris Pike said cigarette and tobacco prices rose 8.7 per cent, reflecting excise duty increases.

Food prices fell 0.9 per cent, reflecting lower prices for meat, poultry, and fish (down 3.3 per cent) and fruit and vegetables (down 2.6 per cent).

The transport group rose 0.9 per cent in the June 2010 quarter, reflecting higher prices for petrol (up 1.4 per cent) and second-hand cars (up 2.4 per cent).

The housing and household utilities group rose 0.5 per cent, with higher prices for rentals for housing (up 0.5 per cent) and electricity (up 1 per cent).

The average pick among market economists polled by Reuters was for the CPI to rise 0.5 per cent, which would keep the annual inflation rate steady at 2 per cent. That was also the Reserve Bank's forecast.

Goldman Sachs JBWere economist Philip Borkin said the "downside
surprise" for the Reserve bank was a pleasant one, ahead of what is arguably going to be a challenging period for policymakers.

"At a time when the domestic economic recovery is lacklustre (with data and various industry anecdotes nothing but mixed) and risks remaining around the pace of global recovery, in our eyes the Reserve Bank is going to have to contend with inflation likely rising over 5 per cent year on year on the back of government charges and a hike in GST - a somewhat uncomfortable scenario."

The Reserve Bank, said Borkin, was assuming that "the coming temporary increase in inflation is assumed to have an only limited impact on medium-term inflation expectations".

"We do not feel today's data has any major implications for monetary policy. We see the Reserve Bank is rightly more concerned about medium-term inflation and there are still a number of question marks on this front; in particular, whether inflation expectations remain anchored."

Borkin said he thought the Reserve Bank would pause in its move towards raising the Official Cash Rate before the end of this year, though he did still expect a 25 basis point hike at the end of this month.

"But as the recent domestic data attests to (and the soft CPI today supports at the margin), we believe there is a risk that this pause comes earlier than our current forecasts."

ANZ Bank senior economist Khoon Goh described today's CPI numbers as "soft across the board - especially when you consider that most of the increase in the headline number was due to a large increase in tobacco excise taxes."

If the tobacco tax increase was excluded, underlying CPI was up just 0.1 per cent in the quarter.

This morning's subdued CPI would be " the last for a while", said Goh, " as various government related policy changes is set to lead to large increases in the CPI over the coming quarters."

Nonetheless, the starting point was better than what the Reserve Bank was expecting. Goh said he expected to see another increase in the Official Cash Rate - 25 basis points (0.25 per cent) later this month.

Today's figures, along with other recent data, suggested " some waning in growth momentum", said Goh.

CTU Economist and Policy Director Bill Rosenberg said the Reserve Bank should be holding interest rates down in light of the lower than expected inflation rate announced today.

"The Reserve Bank overestimated inflationary pressure and underestimated the grounds for concern at the state of the economy," he said.

"The main concern now is about the impact of GST on inflation heading into 2011 and the pressure this puts on workers and families who missed out on decent tax cuts and have had low or no wage increase."

Inflation has averaged just under 3 per cent over five years, held up by the non-tradable sectors (where prices are not disciplined by international competition or exchange rate) averaging close to 4 per cent.

The Reserve Bank forecasts annual non-tradables inflation of 2 per cent in the June quarter, but that is as good as it gets. It expects it to be back above 3 per cent in a year.

The impending GST rise is expected to add 2 per cent to the CPI, and the emissions trading scheme will impact on fuel and electricity prices, adding 0.3 per cent.

The Reserve Bank in its June monetary policy statement said it expected the slack in the economy generated by the recession to be eliminated by early next year and that increased pressure on domestic resources would result in higher non-tradable inflation.

- NZ HERALD

Google earnings rise - but miss target

SAN FRANCISCO - Google's second-quarter earnings missed analysts' target as higher expenses and the fallout from the European debt crisis dragged down the internet search leader.

The letdown stemmed from Google's expanding payroll and a run-up in the US dollar that has been driven by fears that the euro will crumble if governments in Greece, Spain, Portugal and Italy default on their perilously high debts.

The worries hurt Google because about one-third of the company's revenue comes from Europe, and customer payments made with the euro translated into fewer dollars than a year ago.

Google added nearly 1,200 employees in the second quarter to end June with more than 21,800 workers.

Despite the currency squeeze and rising expenses, Google's net income and revenue still rose at a fast clip. But the earnings growth wasn't quite as robust as analysts had hoped, a factor that seemed to amplify investor concerns that had already been weighing on Google's stock price.

Google shares fell US$19.79, or 4 per cent, in extended trading Thursday after the release of results. Earlier, the company finished the regular session at $494.02, up $2.68.

The report wasn't entirely bad news. In a positive sign for the overall economy, marketers were willing to pay more for the online ads that generate virtually all of Google's income, and people are clicking on the commercial messages more frequently.

Those trends provide another indication that more companies and shoppers are feeling a little better as they recover from the worst economic downturn in more than 70 years.

Google, which is based in Mountain View, earned $1.84 billion, or $5.71 per share, in the April-June period, up 24 per cent from $1.48 billion, or $4.66 per share, a year ago.

If not for expenses covering employee stock compensation, Google said it would have made $6.45 per share. That figure was below the average estimate of $6.52 per share among analysts polled by Thomson Reuters.

Revenue climbed 24 per cent to $6.82 billion, from $5.52 billion a year earlier. After subtracting commissions paid to its ad partners, Google's revenue stood at $5.09 billion - about $10 million above analyst projections.

- AP

By Michael Liedtke