Times tough but far from a meltdown

A109 Light Utility Helicopter flight with mayor Gisborne City from the air in November 2023.

Opinion

There’s no question economic conditions are tough, but we need to keep them in historical perspective. We shouldn’t let an undue sense of doom and gloom make things worse than they need to be.

Next week, we’ll see how much damage the recession has done to the job market with the release of new unemployment figures.

Given the prevalence of headlines announcing job losses in the past few weeks, you’d be forgiven for thinking we’re seeing some sort of large-scale economic meltdown. We aren’t. Unemployment is forecast to rise from 4 percent — as of the end of 2023 — to about 4.3 percent.

To put that in perspective, this will be a lower unemployment rate than the country experienced at any time during the years of the so-called rock-star economy under Sir John Key.

Of course, things are expected to get worse. The full impact of the higher interest rates is yet to flow through to those on fixed mortgage rates.

The Reserve Bank and economists are forecasting this cycle of high rates and the economic slowdown will push the unemployment rate as high as 5.5 percent. That is the average unemployment rate across the 38 years data have been collected.

When unemployment dipped to just 5.5 percent in the first quarter of 2001, it was cause for celebration — the lowest rate in 12 years. At the end of 1991, the country was grappling with unemployment above 11 percent.

None of those statistics will matter much to the thousands who have lost or will lose their jobs in the coming months. But we should take heart that the economy has seen much worse.

Unemployment has already risen sharply from a record low of 3.2 percent at the end of 2021. There are now signs the slowdown in the labour market may be easing in the private sector — even as government cutbacks see it accelerate in the public sector.

The latest data on job advertisements — from online jobs site Seek NZ — shows volumes are now down 27 percent year-on-year. The decline in job ads was greatest in Wellington, where they have fallen 38 percent compared with March 2023.

Competition among candidates continues to grow rapidly. Applications per job ad rose 6 percent from November to December (a lag month for Seek’s data), which was already at a record high level in Seek’s history. But job ad volumes for March fell just 0.4 percent compared with February. This followed a 3 percent decline in February (compared to January).

Perhaps that represents a temporary pause. Or perhaps it is a sign the economy still has more life than many had predicted. Either way, be assured we aren’t headed back to the high-unemployment economy of decades past.