Unemployment figures due this week will reveal the extent of the economic damage the pandemic has done so far.
All the indications are that the official unemployment rate for the September quarter will still look much better than it was expected to when the pandemic struck in March.
After a surprise fall to four per cent in the June quarter unemployment likely settled at around 5.5 per cent in the September quarter, economists forecast.
That compares extremely well with Treasury’s forecast in April – that unemployment would reach 9.8 per cent in the September quarter.
It should also be of note to those making comparisons between New Zealand’s Covid-19 recovery and Australia’s – where unemployment is at 6.9 per cent.
The September quarter data, due on Wednesday morning, will provide a cleaner read than the June quarter because the period was much less affected by lockdowns.
But it could still have been flattered by wage subsidies, with some firms still dependent on that support through the quarter.
“We expect that employment fell and the unemployment rate rose, but how much is uncertain, depending on how much these supports have reduced or delayed job losses.” ANZ economists Liz Kendall and Kyle Uerata.
They also expected some volatility to remain “given disruption and measurement difficulties seen last quarter.”
“Our best educated guess is that the unemployment rate will sit at 5.2-5.4 per cent representing a modest deterioration in the labour market.”
The June quarter Household Labour Force Survey (HLFS) caught everyone off guard by indicating that the unemployment rate actually fell to 4 per cent, in the midst of the Covid lockdown, said Westpac senior economist Michael Gordon.
“But the September quarter survey was relatively free of Covid disruptions and measurement issues, so it should give us a cleaner read on labour market conditions,” he said.
We expect the unemployment rate to rise to 5.5 per cent, though there’s a wide range of uncertainty around this number.”
The Covid lockdown created a significant measurement issue, Gordon said.
“Only those who are actively looking for work are classified as unemployed, but lockdown conditions made this impractical.”
After StatsNZ included some additional questioning in June about whether people were not looking for work for Covid-related reasons, the “true” unemployment rate appears to have been more like 4.6 per cent he said.
That’s an increase on the previous quarter, but still well below the range of market forecasts.
ASB senior economist Mike Jones is picking unemployment to have risen to 5.4 per cent.
“There’s usually a pretty close link between economic activity and the jobs market in any given quarter. However, the wage subsidy has changed all that.,” Jones said.
“The quick deployment and massive size of the subsidy undoubtedly cushioned the blow of the recession on the labour market. Some of the gloomier unemployment predictions have thus been revised to more palatable levels.”
ASB expects a 0.7 per cent fall in employment over the quarter and a 0.5 percentage point rebound in the labour force participation rate (to 70.4 per cent).
But while the unemployment figure would look better than first expected it would not be the peak, he said.
“This is very unlikely to be end of the rising unemployment trend, we have the peak pegged at 6.5 per cent in June 2021,” he said.
“Things will get tougher.”
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