Economic Weekly: Labour market tightens amidst suburban urea surge

We have long been inured to labour market data surprises – particularly during the pandemic.  Yet, the figures last Wednesday showing a plunge in the unemployment rate to 3.4% were still eyebrow-raising.  Employment rose 2% over the quarter as well.  The labour market was absolutely on fire before the mid-August jump up in alert levels occurred.  Although job losses have likely mounted as strict restrictions remain in some parts of the country and unemployment is likely to lift over the December quarter, we expect unemployment rate will then fall back to remain comfortably below 4% over 2022.  Wage growth will continue to pick up, reinforcing that inflation pressures will be prolonged.

Both a speech from the Reserve Bank of NZ (RBNZ) Governor and the RBNZ’s bi-annual Financial Stability Report showed the RBNZ is concerned that the pace of house price growth is unsustainable.  Although the Governor pointed the finger at the supply-side response as the long-term solution for containing prices to a ‘sustainable’ level, the RBNZ will continue to develop and implement macro-prudential tools.  Consultation on debt servicing restrictions will start later this month, which will include debt-to-income (DTI) limits and floors on the interest rates banks use to test debt serviceability.  It will be some time next year before any new measures could be used.  The RBNZ estimates it would take banks around 6 months to implement DTI restrictions once it has been designed.  In contrast, setting an interest rate floor on serviceability calculations could be implemented sooner.  Along with a rising cost of credit, availability of credit for borrowers with relatively stretched debt servicing capacity is set to tighten further if the housing boom continues.

This week, watch out for October electronic card transactions, which should show a partial (10%) rebound from the August & September weakness.  The easing of restrictions, particularly to Level 2 in much of the country, should lift hospitality, apparel, fuel, and non-retail card spending.  Also keep an eye out on Thursday for the preliminary results of ANZ’s November Business Outlook survey.

Last Monday’s 4pm announcement brought some relief for the retail sector in the parts of Waikato and (soon hopefully) Auckland that are sustaining Level 3 restrictions.  It will enable a much greater degree of trading to occur than click & collect or beleaguered couriers can, particularly for those products that people prefer to view in person.    Unfortunately, as a less follicly-challenged colleague pointed out, hairdressers and some other close-contact services are still not able to open – though in timely fashion Movember has just started.

With COP26 in full swing, it may be worth the Government considering the environmental aspects of the Level 3 Step 2 gathering rules.  With people allowed ‘outdoor’ picnics of 25 random people, there is going to be a lot of added strain on suburban urea absorption.  That may be good for sales of bushes at garden centres, but has implications for methane emissions and nitrate run-off.  Perhaps indoor ablutions could now be permitted?  

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