Editorial: Jobs news tells us it's a hopeful time

The latest official survey of the labour market has brought good news for New Zealand at a time the global picture has darkened. In the last three months of 2000 the number of jobs in the economy rose by 20,000, most of them (14,000) being full time. At the same time, unemployment has dropped to 5.6 per cent, the lowest it has been since June 1988. In other words, the number of people actively seeking work who cannot find it is lower now than it was in mid-1990s boom. And this time, the recovery is built on export prices and assisted by a lower dollar. It is a hopeful time.

There will be those who caution that the period surveyed ended in December, before the mood in the United States economy began to infect the world outlook. But there is no reason to think New Zealand need catch the infection. In fact, there is every reason to think that we may be inured to it for a while, having talked ourselves into a funk and talked ourselves out of it again during the past year. Much of the talk in American business circles right now has a familiar ring to visitors from here.

That is not to deny that gloomy talk can be self-fulfilling. Don't we know it? As much as anything else, economic cycles seem to run on psychology and occasional bouts of collective psychosis. But we also have discovered that psychotic recessions can be short-lived. While Australia and others seem to be succumbing to the talk, this country seems to be ignoring it so far. In fact, the Reserve Bank has been more concerned about inflation than contraction until recently and, unlike its American and Australian counterparts, it has not cut interest rates in recent weeks.

The employment figures released yesterday will count against an interest rate cut for the time being, though even better results did not deter a cut to interest rates in the US. It ought to be recalled that the Americans added three times as many jobs as expected to their economy last month, yet the Federal Reserve went ahead with its second substantial cut the other day.

Reductions of the magnitude that Alan Greenspan has made can be a double-edged sword. While they can give stock markets a lift and boost activity, they can also generate their own fears. People may conclude that if the savvy Mr Greenspan is satisfied enough to lower the rate by fully 1 per cent in two hits, things must be serious. Even some commentators who thought his first step was a little hasty have concluded the worst now.

But the American downturn needs to be kept in perspective. It follows an extra-ordinarily long and strong boom that was shaken last year by a contrived rise in international oil prices and their effect on corporate results.

But the fundamental elements driving the boom remain. As a Merrill Lynch observer has remarked: "The technological revolution is for real, deregulation is for real, the opening of markets is for real." As luck would have it, the country has also just acquired a presidency committed to a big tax cut. A few months ago that looked unwise; now it may be highly opportune.

In this country the job figures tell a story of steady, unspectacular growth, which is much to be preferred to the boom and bust phases we had for too long. Both sides of Parliament can (and will) claim credit for the improvement. The drastic fall in the dollar after the change of government undoubtedly has spurred the rural economy and tourism.

But it would be idle to deny that the opening of the economy since 1984 and the fiscal discipline since 1991 have made the country more competitive and capable of sustained non-inflationary growth. Unemployment has been declining and job numbers rising for a good while.

It is particularly gratifying that employment appears not have suffered so far for the restoration of union bargaining muscle last year. It is still early days but the trend seems to be on course for the 5.5 per cent unemployment rate projected for next year before the Employment Contracts Act was repealed. The prospect of extended bargaining rituals and less flexibility in working arrangements has not yet discouraged job creation, and with good sense on all sides those costs might never arise.