Unemployment spike stokes talk of interest rate cuts

New Zealand's 13-year high unemployment rate has opened the door for the Reserve Bank to cut interest rates to help underpin growth in an economy recovering from the deepest recession in two decades.

The household labour force survey today showed the jobless rate unexpectedly rose half a percentage point to 7.3% in the September quarter.

Economists surveyed by Reuters were picking the headline rate to ease to 6.7% from 6.8%.

Markets are giving central bank governor Graeme Wheeler a 22% chance of cutting the official cash rate at the December monetary policy statement, according to the Overnight Index Swap curve, up from 12% yesterday.

The New Zealand dollar dropped to 81.93 US cents after the employment data, from 82.56 cents immediately before as the prospects for a rate cut grew.

"There's definitely a message in the HLFS – the economy is not doing as well as people thought," says Darren Gibbs, chief economist at Deutsche Bank.

"Rates are certainly not restrictive and may be stimulatory, but are they stimulatory enough?"

The Reserve Bank has kept the benchmark rate at 2.5% since cutting half a percentage point to shore up confidence after last year's February earthquake in Canterbury levelled much of the country's second-biggest city.

Former governor Alan Bollard had indicated he would lift the rate later that year, but shelved those plans after Europe's sovereign debt crisis intensified, stoking fears of another global financial meltdown.

The HLFS has shown rising unemployment for the past three quarters. The number of people employed fell 0.4 percent to 2.22 million in the second quarterly decline, while the participation rate was unchanged at 68.4 percent.

New Zealand's labour market has been struggling to recover from recession, with employers more keen on taking on part-timers and casual staff than hiring permanent full-timers.

Just today, Dynamic Solutions of Christchurch said it will shed 40-60 jobs as it winds down its contract manufacturing business.

That comes two days after Auckland manufacturer Rakon said it would cut up to 60 jobs as it shifts more work overseas.

Today's figures come after the quarterly employment survey showed total filled jobs rose 0.3% to a seasonally adjusted 1.715 million, bolstered by a pick-up in part-time workers and a decline in full-time equivalents to 1.35 million.

Mr Gibbs says the difference between the two surveys could be squared up, as the QES doesn't include self-employed people, while the HLFS does. The number of self-employed people dropped 8.1% in the year ended September 30.

(BusinessDesk)

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Lowering the interest rates would only be successful if the Reserve Bank also regulated the amount people could borrow to 75% of a valuation. Otherwise the housing market will be on steroids and all money would be flooding into rental housing and not into job growth.

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I think you could be wrong on lower interest rates spiking the housing market, though I do like your idea of regulating the level of borrowing.

Firstly, people need job security before they jump into borrowing more.

Secondly, the chance of this government regulating the banks is next to nothing; when one of their own is in power.

Lastly, interest rates should have dropped by now. Its only Keys connections that are stopping this. Higher rates generally means higher profits for the banks. Now why would Key request that, when that is the means by which he has made his fortune. You dont bite the hand that feeds you.

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Drivel.

Lower rates mean people borrow more, duh. Higher rates puts pressure on bank margins, which is where their profits come from.

You seem to be forgetting that rates are as low aas they've ever been, and falling.

Key was a trader, then an executive at Meryll Lynch, now part of Bank of America. He doesn't work for, own shares in, or have anything to do with NZs retail banks.

Get real.

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Whats the point if the banks don't lend to businesses - you have no idea the hoops I had to go through to get a OD for my business.

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All the banks have been in trying to sell us more money for projects so I guess its down to the business and risk....

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Right on, The days of "trading banks" backing business went some years ago, they only lend with surety over land, even your mothers land will do.

They wont lend to business because business is "too risky" why is it "too risky" because we have free market policies that enables any importer aided by an unreal exchange rate to cut the market out from under the local producer at will.

The ultimate out come of free market economics is monopoly or duopoly
at best nothing at worst (total reliance on imports) the casualty is small business and consequently employment.

get used to it!!
less companies in NZ - less jobs in NZ - moreredundant workers dependent on the state - arn't we starting to look like Greece?

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Banks should be regulated so they could not lend more than 80% .This should only apply to housing, releasing more money for business's

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At first glance you would think so, but in reality, no. That rule wouldn't stop banks lending like mad to people who have more than 20% deposit - its not the crazy 95% leveraged investment property craze of the 2000's pushing up prices now, its a relative lack of supply.

That LVR rule would also segment low deposit buyers into cheaper homes, and high deposit buyer into more expensive homes - it doesn't necessarily stop either of them from bidding up their prices.

You'd also just create a black-market for non-bank loans to make the that ratio - getting money from friends, familiy to secure that ideal home. Or just get the car and TV on credit and keep the cash for the house..

Further, if there's no evidence banks' allocation of lending to housing is coming at the cost of business'. Banks can essentially lend inifinitely at the right price and risk grade. If a good business loan opportunity comes around, borrow in London and fund it - regardless of what houses are doing.

Regulation usually fails to do what it sets out to do, just because interralationships are often very deep and complicated.

The only loan regulation i can think of that may actually work is limiting the life of a loan to say 25 years, down from 30, or whatever is the norm nowadays. It limits people's ability to pay for houses on credit, without pushing up prices or housing affordability. Some of the most indepth analysis on the house price boom of the 2000s points to longer term loans as being a signifant source of price increases - $500/week for an extra 5 years allows you to bid another ~10% to 15% on the spot, faced with the same weekly payment.

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That'll work - not. Then the only people who can buy will be cashed up immigrants. Somehow that helps kiwis? Did I miss something?

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The Christchurch City Council should probably be adding to the unemployment tally in NZ as they appear to be so over-staffed they only need their employees to turn up 19 days out of 20.

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So many kiwis moving to Aus...
....and Aussie unemployment rate drops to 5.4% from 5.5% today.

NZ is a mess.

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Doh - the world is a mess.

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You misssed the bit about Australia improving?

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Markets are cleared by discovering the price of goods and services. If supply of labour exceeds demand it is because the price is too high.

These figures are the entirely predictable outcome of legislating for a minimum wage level which overlaps the market wage level. This is particularly the case in respect of teenagers.

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And we have a winner ... continuous government meddling in the labour market by parties of either stripe has left NZ with a dysfunctional over-regulated, mess ... and a record high unemployment, no surprises there.

Someone should take a look at Germany's recent hugely successful liberalisation that got their youth working again. Up to 4 part-time jobs earning no more than Eur400 per month, tax-free, unreported, no obligation on the employer ... unions hated it but it opened the bottom rung of the labour market and got people back in contact with the job market ... the minimum wage is a terrible idea and a blunt axe solution meant to help poor people that does more harm than good.

The economy still needs casual labour, in an over-regulated market stuffed full of administrative bloat they have effectively outlawed casual labour. Basically, the bottom 10-20% of the economy cannot afford the 40% admin costs that govt. has placed on ALL economic activity, so they simply do not participate any longer.

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Disagree with you. The problem is not that labour is too expensive -- in general, it is impossible to pay people more than the value of what they produce -- the problem is that workers haven't been getting paid enough to buy the things being produced. Not NZ workers, mind you, who are heaped with crippling levels of debt, but the Chinese workers.

What needs to happen is for China to stop selling things on tick and start buying stuff themselves. But their workers aren't paid enough. (Meanwhile Apple's got something like $100 billion in cash.)

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One of the problems is that the minimum wage has become THE wage. And that isn't enough to live on.

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You take my life when you take the means whereby I live

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It’s a recession when your neighbor loses his job; it’s a depression when you lose yours

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The economy is so bad, Madonna wants to adopt a baby from New Zealand.

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I never thought I`d say it but Right now I`m leaning towards Winston Peters. NZ First.
I have to admit that everything Winston has campaign for has been right on the mark. Selling assets, high dollar, out dated reserve bank act, high interest rates, tax evasion/avoidance and out dated resource management act are all major issues that Winston has campaigned to fix. These are fundamental truths that need correction in order to create jobs and higher incomes.
Back in the 90`s he campaigned for a NZ national super scheme similar to Australia. Bolger & Shipley Govts poo hoofed him until the penny finally dropped 10 years after, when Cullen saw the light. Kiwi saver is working very nicely now. Winston has campaigned hard on the tax evasion loop holes i.e. (wine box saga) with some success, but unfortunately this was to the detriment of his political career from those with arrogant egos with self agendas who just wouldn’t listen. I might add Peter Dun arss still believes that legal tax avoidance is not tax evasion. The two are the same thing if you ask me, it just depends who you are which determines whether you get away with it or not.
For decades Winston has campaigned for a better deal for NZ Exporters and New Zealanders. How long will it take before the penny drops on this one. He’s on the money concerning Exporters and has been for decades. This country is going down the drain hole faster than 10,000 psi vacuum. We need a radical shift in policy before midnight.

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NZ Market Snapshot

Forex

Sym Price Change
USD 0.7869 -0.0007 -0.09%
AUD 0.9204 -0.0025 -0.27%
EUR 0.6311 0.0013 0.21%
GBP 0.4998 0.0010 0.20%
HKD 6.1019 -0.0037 -0.06%
JPY 92.6560 0.0090 0.01%

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Gold Index 1196.6 -2.970 2014-11-26T00:
Oil Brent 79.4 -0.640 2014-11-26T00:
Oil Nymex 73.7 -0.340 2014-11-26T00:
Silver Index 16.6 0.000 2014-11-26T00:

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Symbol Open High Last %
NZX 50 5457.4 5462.1 5453.0 0.04%
NASDAQ 4760.2 4788.0 4758.2 0.61%
DAX 9934.8 9992.7 9915.6 0.60%
DJI 17812.2 17833.8 17814.9 0.00%
FTSE 6729.2 6749.9 6729.2 -0.09%
HKSE 24169.8 24228.1 24112.0 -0.45%
NI225 17310.5 17346.8 17383.6 -0.78%