“The recovery so far has been full of surprises,” Reserve Bank governor Alan Bollard told a South Island local government conference at 10 am today.
“There will be more to come."
Forty five minutes later, Statisticis New Zea
“The recovery so far has been full of surprises,” Reserve Bank governor Alan Bollard told a South Island local government conference at 10 am today.
“There will be more to come."
Forty five minutes later, Statisticis New Zealand dropped the biggest surprise of the recovery so far: unemployment took a dive to 6% of the workforce in the March quarter, from 7.2% the previous quarter.
That is the largest ever quarterly fall since the survey began in March 1986, and the second largest quarterly change in either direction.
It also came in a quarter which usually sees a rise in numbers looking for work as seasonal summer agricultural work comes to an end.
It also came in the face of most economists predicting a small rise for the quarter.
“Stunning,” is how Westpac economist Brendan O’Donovan described the figure.
“We have long been the cheerleaders of the economic recovery, but today's data had even us dropping our pom-poms in astonishment. “
It had been thought that with many firms keeping staff on but cutting back their hours over the past 18 months, that it would take a while for unemployment to drop: instead, firms would extend the hours of existing staff.
In fact, the "hours worked" data, which were also included in releases this week, show these are rising too.
“Part time employment actually declined by 3000 – it appears an improvement in employment intentions in business surveys over late last year is flowing through into actual hiring,” says ASB Bank economist Nick Tuffley.
Some economists pointed out the last quarterly result was surprisingly high, and there seems to be a bit of evening out going on.
The unexpectedly improvement – and its size – mean Dr Bollard’s lifting of the official cash rate from its current level of 2.5% when he next reviews monetary policy on 10 June is a near certainty.
The only thing that could derail that would be an unexpectedly harsh budget from Finance Minister Bill English on 20 May.
The present 2.5% OCR is at historically low and decidedly stimulatory levels. Dr Bollard this morning emphasised the strength of the export sector at present but also the fragility of the domestic economy.
That was, in its way, borne out by the unemployment figures: the largest increase was in manufacturing, where employment numbers rose 9.6%, an astonishingly high number for just a quarter.
The manufacturing sector is dominated by firms selling into Australia’s booming market (which in turn is booming largely because of China’s Industrial Revolution-degree of expansion).
The need to lift the rate gradually this year is driven by the need to prevent an inflationary bubble and borrowing getting out of hand.
Dr Bollard however this morning indicated any touch of the monetary “brake” is a long way off, and that given the historic low levels of the OCR the next increases are more analogous to easing off the accelerator pedal.
