Staff cuts are never easy to take.
OPINION
It’s incredible how quickly the mood around the job market has turned.
By mood I mean the general sentiment - not the actual unemployment numbers, which haven’t shifted nearly as much as people might think.
This will sound brutal but, statistically, we are probably less than halfway through the rise in unemployment for this economic cycle.
Economists expect that there will be somewhere between 30,000 and 50,000 more unemployed people by this time next year.
Let me explain.
This time last year, businesses were still bemoaning labour shortages and workers were benefitting from near-record lows in unemployment.
Now, with the country in the grip of recession, we seem to be seeing new headlines announcing job losses every day.
Last week felt particularly grim.
Media job losses have dominated the news cycle, with nearly 400 roles cut across TVNZ and Newshub.
However, there has also been a steady stream of public service cuts from government ministries and departments required to reduce costs. The total had reached 1300 cuts at last count, and more are likely to come.
Councils are also cutting back and other corporates are battering down the hatches for this economic cycle.
There have been cuts at telco companies One NZ (around 200 jobs), Chorus, Spark and 2Degrees (all with cuts in the double digits).
Meanwhile, construction and retail company failures have added to the toll.
Coming in the immediate wake of the news last month that New Zealand entered recession (in late 2023), it is creating a very sombre mood across the nation.
But what is incongruous is that the official unemployment rate is still well below the historical average. All the gloomy headlines we’ve seen in the past few weeks only add up to a few thousand jobs at most.
Every one of those job losses is awful at an individual level, an unwelcome disruption at best and a catastrophic life upheaval at worst.
I don’t in any way wish to underplay the personal pain they involve, but the numbers are clear.
Stats NZ’s long-running unemployment data series shows the average rate has been 5.5 per cent since 1986.
The data reached an all-time high of 11.2 per cent in September 1991 and a record low of 3.2 per cent in March 2022.
That low in March 2022 equated to 97,000 unemployed. By the end of 2023, the figure had risen to 4 per cent - 122,000 people.
For the record - because people get very animated about it - let me also make the distinction between official unemployment statistics and the benefit numbers.
The latest figure for those on Jobseeker Benefit who can be described as “work ready” (i.e. not counting what we used to call sickness beneficiaries) is 109,000, as of December 2023.
So, if anything, benefit numbers are undercounting compared to the Stats NZ data.
But, regardless, they are different figures and they should stay different. Did overall benefit numbers rise under Labour because they ran soft policies? Are too many people on sickness benefits and will a harder-line approach from the new Government change that? These are different questions for a different debate.
What is important is that the official unemployment data - collected in the Labour Force Survey - provides a consistent and robust data set that dates back to 1986. That allows us to compare what’s happening now with previous economic cycles.
The data has remained free from interference and change by politicians - which benefit classifications have not.
In my view, there has been some disingenuous conflation of these figures by commentators in the past few years which has had the unfortunate side-effect of undermining one of the best economic data sets we have.
But I digress ...
We get new data for the first quarter on May 1 but it is not expected to show a huge rise in unemployment. The consensus is for a rise to 4.2 per cent (from 4 per cent). That’s another 5000 or so jobs gone in the quarter.
Expectations are that we’ll eventually see the unemployment rate peak between 5.1 and 5.7 per cent in this cycle, i.e. around a historically average level.
The Reserve Bank has 5.1 per cent pencilled in for 2025, the NZIER consensus of economic forecasts has a peak of 5.2 per cent by March next year.
Landing back at the historically average levels of unemployment doesn’t seem like a symptom of a deep recession or terrible economy, especially in the wake of a hugely disruptive global pandemic.
But the transition does feel bad.
Depending on that final peak we could be looking at another 50,000 people being unemployed.
I should note these are approximate figures because variables like high net migration increasing the working-age population aren’t easy to factor in on the back of an envelope (which is where I do most of my maths).
I should also note that not all these newly unemployed people will have been laid off.
Many will be young people who come out of school and tertiary education and can’t find a first job. That might be less traumatic than being made redundant, but it is potentially worse in the long term. This is where long-term benefit dependency starts.
All of this is a reminder of just how much sentiment underpins the economic outlook.
How a country feels about its economy is almost entirely driven by the direction of travel. It doesn’t matter how bad things are, if they’re getting better we feel good.
Conversely, it doesn’t matter how good things are, if they are getting worse we feel bad.
Based on the pall of gloom last week’s job losses cast over the country and the long way we have to go to the peak of the unemployment cycle, we can expect some more gloomy weeks ahead.
If you have questions about how GDP works (or anything economic) leave them in the comments or send to liam.dann@nzherald.co.nz and he’ll try to answer them in his weekly column - Inside Economics
Liam Dann is business editor-at-large for the Herald. He is a senior writer and columnist, and also presents and produces videos and podcasts. He joined the Herald in 2003.
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