KEY POINTS:
Residential property prices slumping, finance companies collapsing and a global credit crunch sweeping the globe.
All heading for hell in a handcart surely? Well, probably not, and for that we have to thank the unsung hero of our economy.
It's unemployment, or more properly, the lack of it.
The country's unemployment figures once loomed large over the economy, yet last month's statistic of another record-equalling low unemployment rate of 3.6 per cent attracted little interest.
And a survey from recruitment and employment consultants Manpower shows 31 per cent of New Zealand employers expect to hire more people during this fourth quarter of 2007.
Only 5 per cent expect their workforce will decline, and the rest expect no change.
Scott McLachlan, Manpower managing director for Australia and New Zealand, says the employment outlook is encouraging.
"The ongoing strength in hiring intentions indicate that hiring managers are still feeling confident about taking on new staff over the next quarter," he says.
Manpower reports Auckland that employers as the most optimistic, with 32 per cent planning to add staff over the next three months.
Strong employment numbers are being seen across the economy. Business New Zealand last week published its monthly performance of manufacturing index, showing that manufacturing continues to expand.
Ganesh Nana, an economist at BERL, says the link between unemployment and inflation (namely that the lower an unemployment rate the higher inflation will go) has changed.
"For those with a bit of a memory it's not that long ago that any unemployment below 7 per cent was tremendously inflationary," says Nana.
"The link has changed and we have moved to a situation where we can enjoy much lower levels of unemployment - lower than the 1990s."
He sees no reason to think there will be any significant rise in unemployment in the near future.
"Clearly there are avenues for New Zealand's employment growth to continue. The jobs continue to be created and continue to be found," says Nana.
"We hear stories of manufacturing plants closing down or going offshore, but they are being replaced. That's just part of the general economic environment, firms close down and firms open up. We don't see a significant rise in unemployment, no.
"The outlook is not all doom and gloom. If you take on the credit crunch scenario from overseas, we see those as predominantly financial market issues. You don't want to underplay it, but you don't want to overplay it. Yes there is potential for that to spill over to the real economy and it could have implications for the real economy if it's not handled correctly."
The negative impacts of any residential property slowdown, which Nana welcomes as a much-needed event, is "much, much less" during times of low unemployment like now.
Rozanna Wozniak, chief economist at Arcus Investment Management, says there are things people in work can do when times get tough, such as cutting back on spending.
The housing cycle can even be "exacerbated by people losing their jobs" when people are forced to put houses on the market.
In countries like the US, families have more financial assets such as shares. Such liquid assets can be sold in tough times, but Kiwis tend to put all their savings into housing, meaning there's no option but selling a house.
The prolonged periods of good economic times and low unemployment have, however, also encouraged consumers to believe they don't need to put safety measures in place. This has encouraged the belief that "finance companies are good places to be in," says Wozniak.
"It's almost like the parachute that's preventing the sharp fall. And enabling us to glide down."
CTU economist Peter Conway says low unemployment means a much more inclusive economy, but warns it can also hide trouble. "It is masking problems around low pay, so the assumption that having a job means having a decent job - or having good pay is a leap too far."
New Zealand has yet to see a relationship between more people in work and more people being able to buy their own homes - a link many intuitively think is the case.
"That tells a story about low wages but it also tells a story about high house-price inflation," says Conway.
"The focus now is that with a lot more people in work, how do we lift wages and productivity?"
To have unemployment consistently below 4 per cent is significant.
"I remember February 2000, when Westpac Bank said 6.3 per cent unemployment was 'worryingly low'.
"I think what's been proved is that you can have unemployment anchored below 4 per cent and not have high inflation."
The Bank of New Zealand's head of research, Stephen Toplis, told the New Zealand Herald last month that tightness in the labour market was the single biggest problem facing the economy. Job security left people feeling "bullet-proof", and comfortable spending up large both on housing and through the retail sector and becoming less resistant to price rises.
At the same time business had to cope with increasing wage bills, high staff turnover and output constrained by the inability to find staff. These factors compressed profit margins and encouraged firms to raise prices.
Another less attractive side of the strong New Zealand employment market - and especially the quest for greater productivity from workers - is the high level of people moving between jobs each year.
The CTU's Peter Conway says out of 2.1 million workers, there were 1.2 million occasions each year when someone started a new job. Such a "churn rate" of 33 per cent was high, compared with 20 per cent in the US.
"It tells us that with a very flexible labour market, people can go and find another job quite easily," he says.
But it is also telling us there is perhaps quite a lot of dissatisfaction with the jobs people have got - they are looking around for something a bit better and they're not staying around long enough to build up the skill level.
