Thursday, 3 May 2012

Unemployment lenses

It's been fun watching the Twitter reactions to the latest quarterly employment survey.

Folks who don't like the government have been pointing to the higher-than-expected unemployment rate. In the last budget, Treasury figured we'd now be at a 5.7% unemployment rate; we're instead at 6.7%. That's a pretty big difference. And, it's a big jump on last quarter's 6.4%, though about on par with where we've been over the last two years.

But Treasury didn't just forecast the unemployment rate in the PREFU.

Treasury forecast (,000s)Actual (,000s)
Not in the Labour Force1,1151,086
Labour Force2,3602,390
Total Employment2,2252,230

So 29,000 people are in the labour force who weren't expected to be there. Most of them are unemployed. To me, that says job creation is slow and employers are reluctant to take on available workers, but that people are expecting to be able to find work - otherwise, they'd be outside of the labour force. A really bad news story would have had the number of unemployed higher than expected but with flat or decreasing labour force participation as discouraged workers leave the labour force.

So if you want to paint a good-news story, you can focus on that 5,000 more people are working than Treasury expected and that more people are now working than ever have been before. And, the employment rate, at 64.2%, is higher than it's been since 2009. If you want a bad news story, both unemployment and underemployment remain stubbornly high and hours worked are weak.

Matt Nolan over at TVHE watches these numbers a lot more closely than I do. He points to a fair bit of weakness in total hours worked; he wonders whether an interest rate cut might be in order. iPredict agrees: the likelihood of an interest rate cut in 2012 jumped from 38% to 47% with the employment numbers. Inflation trading suggests inflation rates below 2% through June 2013. After that, there's even odds that it's higher than 2% and a 20% chance that it's over 3%. The markets also suggest the unemployment rate won't fall below 6.5% before September quarter and will stay above 6% until March 2013. I'm not sure the inflation forecasts would be inconsistent with RBNZ trying a small OCR cut.

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