Employment and Skills

Labour market trends – don’t worry (yet)

Tuesday July 31, 2018

Recent business surveys in New Zealand have pointed to a significant decline in confidence.  For example, the results from the ANZ Business Outlook showed that the proportion of respondents expecting an improvement in general business conditions in the year ahead dropped to a net negative 45% in July 2018, compared to a net positive 20% a year earlier[1].  The proportion of respondents expecting an improvement in their own activity levels remained positive, but it dropped to a net positive of just 4%, compared to a net positive of 40% a year earlier.  Other business surveys have painted a similar picture.


The ANZ survey also covers expectations about the labour market; and these, too, point to a worsening outlook.  In July 2018 a net positive 2% of respondents indicated that they expected employment to increase in the year ahead, down from a net positive of 25% a year earlier.  Similarly, a net positive 20% expected unemployment to increase in the year ahead, compared to a net negative 12% a year earlier.  In other words, the expectations are that employment will barely increase, while unemployment will grow considerably.


Business confidence surveys are not always reliable, so it is instructive to look at what has actually happened in the economy in the recent past, and to see how general economic conditions have translated into labour market conditions.


The latest GDP figures were published in June, and they were for the March 2018 quarter.  These showed that GDP was 0.5% higher than in the previous quarter and 2.7% higher than a year previously.  Labour market data for the same quarter showed that employment was 6,900 higher than in the previous quarter and 79,400 higher than a year earlier.  The unemployment rate in the March 2018 quarter was 4.4%, compared to 4.5% in the previous quarter and 4.9% a year earlier.


Against this background, the most recent set of labour market statistics were somewhat disappointing.  In the June 2018 quarter, employment (not seasonally adjusted) was down by 2,900, compared to the previous quarter.  The unemployment rate edged up to 4.5%, from 4.4% in the March quarter.


However, this does not necessarily mean that New Zealand faces the prospect of little or no growth in employment; or, even worse, declining employment.  The graph below demonstrates that quarter by quarter falls in the number of people employed are not at all unusual, even when employment is growing rapidly, when measured on an annual basis.


graph 02 08 18 02


The latest set of labour market statistics do not, therefore, necessarily mean a great deal.  But the danger is that the mood of pessimism can become infectious and sustained.  And, if businesses start to become pessimistic, even about the prospects for their own activity levels, their behaviour will change.  The risk is that they could put expansion plans on ice, delay investment, and decide not to replace staff who leave.  Employment would then start to trend downwards and the unemployment rate would increase.


Under these circumstances, the government will be hoping to reassure the business world that its pessimism is misplaced.



[1] The net percentage is the percentage expecting an improvement less the percentage expecting deterioration.