The quarterly suite of labour market data came out yesterday, and it wasn’t a case of senior ministers at their most edifying (sadly, it is difficult to imagine things would be any different if the current government and Opposition parties swapped places, but….today’s ministers hold office today).
The one that first caught my eye was this from the Minister of Health
And in the newspaper this morning I see the Minister of Finance running the same line, suggesting that it was “of particular note” that the number of people unemployed was 8000 less than Treasury had forecast in the PREFU (the same source Brown appeared to be drawing from).
One assumes these senior ministers are smart enough not to take these lines substantively seriously. Macroeconomic forecasting two years ahead has always been something of a mug’s game. Some numbers might be needed to drop into spreadsheets – eg for budgeting purposes – but no serious observer ever expresses a great deal of confidence in any specific set of numbers forecast that far ahead. If Treasury got the current unemployment rate right to with 0.2 percentage points two years out one could say “well done them” but it might also suggest a reasonable element of luck. As it happens, on this occasion and this particular variable, the Reserve Bank was even closer, having predicted in its August 2023 MPS that the June 2025 unemployment rate would be 5.3 per cent. It was, in fact, 5.2 per cent.
I responded to Brown’s tweet yesterday afternoon thus
Treasury didn’t publish lots of detailed quarterly tables in the PREFU, but the Reserve Bank did in their August 2023 projections (completed a week or so later than Treasury’s numbers).
How are things looking?
We only have national accounts data to March. In August 2023 the Reserve Bank predicted that real production GDP would rise by 2 per cent (apc) in the year to March 2025. On current SNZ estimates, it actually fell 0.7 per cent. Private consumption was forecast to grow by 2.8 per cent and it actually rose by only 1 per cent.
What of the labour market data? The Bank had the unemployment rate forecast to be 0.1 percentage points higher than it turned out to be. But they thought the employment rate by now would be 68.2 per cent of the labour force, but it proved to be only 66.8 per cent (and they expected numbers employed would have risen by 1.1 per cent in the year to June 2025, when they actually fell by 0.9 per cent).
As for wages, the private sector Labour Cost Index measure was forecast to rise by 3.8 per cent in the year to June 2025 and actually rose by 2.3 per cent (and the difference isn’t inflation (non-tradables inflation in the year to June 2025 was actually a bit higher than the Bank had forecast a couple of years ago)).
And, finally, the OCR was forecast to be 5.12 per cent in the June quarter 2025, but ended up averaging 3.44 per cent (as it happens, Treasury’s short-term interest rate forecast was materially less wrong than the Bank’s).
None of which is really intended to have a go at the Bank (although those OCR projections always looked odd), because (a) this stuff is hard, and b) relatedly, there are big margins of uncertainty around all sets of economic forecasts, especially those two years ahead. Senior Cabinet minister deserve to be called out when they cherry pick one single datapoint and claim outcomes are better than (some forecasters thought -a couple of years previously – that they’d be) under the other lot. Calling them out won’t stop them – politicians will politik – but in doing so they (further) discredit themselves.
As for some of the recent labour market data, here are a few charts I used on Twitter yesterday.
First, hours worked
Second, (my preferred measure of) wage increases (although note that productivity growth is probably weaker now than last decade)
Third, jobs
And here is the monthly version of the filled jobs series (which is drawn directly from tax data), noting that this is the most frequent and the most timely series (NB: a monthly HLFS would be great…)
And as bank economists remind us each month, most recent estimates have been tending to be revised down as fuller information comes to hand.
And finally, the SNZ experimental weekly jobs data, this time (because the data aren’t seasonally adjusted) shown by comparison to the same weeks in previous years.
There doesn’t seem to be anything very positive in the labour market data. At best, perhaps, the drop in the number of job ads seems to have levelled out.
UPDATE: I just saw a journalist claiming the real wage increases had gone negative again. That is not so if one uses the appropriate wage measure (ie the analytical unadjusted measure of wages, which does not attempt to correct – reduce – for productivity growth), whether one then uses either the CPI or the Reserve Bank’s core inflation measure to deflate wage increases.
croaking cassandra 
Very interesting article and backed up with data. Thank you, Michael. My Keynesian expectation was a higher unemployment rate than came out.
The RBNZ has nailed the unemployment numbers so far. But they overstate GDP.
From the macroeconomic view the reduction in the number of total jobs in the economy can’t be a good thing but so far businesses seem to be holding onto workers and maintaining sufficient cashflow or drawing on savings. It seems to be new jobs and entry jobs that have stalled.
What impact will there be on Q3 and Q4 numbers? Bank economists are predicting a return to positive territory in Q4.
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Are lower interest rates the circuit breaker or government funded projects starting later this year?
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When Sir John Key says we need another 1% drop in the OCR then the trigger is interest rates need to fall another 1%. I say we vote for Sir John Key as the next Governor of the RBNZ. He knows what is exactly required to get a bull back into the NZ Economy.
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on the other hand Simon Bridges was out this afternoon saying what we need a bigger fiscal deficits to fund company tax cuts (rather than thinking int rates can do what is needed)
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I noted Bridges request for fiscal intervention – I assumed he meant increased government spending as this will have a direct impact on economic growth. Tax cuts are a less certain delivery mechanism – why would business spend and not save tax cuts in a weak economy.
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No, he seemed quite explicit about wanting stimulus via a corporate tax cut (not spending increases)
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A corporate tax cut in NZ would not be sufficient to stimulate an economy. And it also would not be sufficient to draw in the multinationals to invest and to set up a Head office in NZ against a corporate tax rate of 17% in Singapore or even less in other Asian jurisdictions like Hong Kong.
The problem with our NZ Super is that the contribution is drawn from the tax collected.
In Singapore, where there is a compulsory National Super scheme, they have variable superannuation rates charged from 10% to 16% dependent on the economy to the Employer and are separately charged from the corporate tax rate. That 17% corporate tax rate does not include the additional 10% up to 16% Company National Superannuation contribution rates. Singapore uses a Variable Superannuation rate rather than interest rates to moderate or increase spending in their economy.
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That’s very interesting greatstuff. MMT also considers the use of variable compulsory savings as an additional inflation fighting option. And Singapore – it sounds like – is doing exactly that. I wonder if they have a record of better price stability and inflation management as a result.
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Singapore also has very progressive housing policies that deliver very different outcomes compared to our own housing market.
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Okay – that fits with his political background as a National MP and a belief in a private sector led recovery.
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