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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Jane Turner

Senior Economist

Originally hailing from sunny Nelson, Jane moved to Auckland to join the ASB team in 2008.  As Senior Economist, Jane's main focus is co-ordinating the team’s macro-economic forecasts.  In this key role, Jane was thrilled by the team’s twice consecutive win of the Consensus Economics Forecast Accuracy award.   

During her decade-long career in economic forecasting, Jane has gained a thorough knowledge of the New Zealand economy.  Her current focus is on New Zealand GDP growth, including both manufacturing and the construction sectors.  She has spent time forecasting most sectors of the economy, including inflation, trade, housing, labour and financial markets.

Prior to joining ASB, Jane honed her macro-economic forecasting skills at the Reserve Bank of New Zealand.  Jane is a qualified scarfie, attending Otago University and graduating with a Bachelor of Commerce in Economics with 1st class honours.  In 2014, she took a career break from ASB to travel the world and learn to snowboard.

Mark Smith

Senior Economist

Mark joined ASB in 2017, with over 20 years of public and private sector experience working as an economist in New Zealand and the UK.

His resume includes lengthy stints at ANZ and the Reserve Bank of New Zealand, and he has also worked at the Bank of England, HM Treasury and the New Zealand Transport Agency. Mark's areas of specialisation include interest rate strategy, macro-economic analysis and urban economics.

Born and bred in the Waikato, Mark studied at Waikato University where he graduated with a Master of Social Sciences, majoring in Economics.

Mark's key strengths are the ability to use his extensive experience, inquisitive nature, analytical ability, creativity and pragmatism to dig a little deeper and to deliver common sense solutions to tackle complex problems.

When not at work Mark likes to travel, keep fit and spend time with his friends and family.

Mike Jones

Senior Economist

Mike joined ASB in 2019 armed with almost 15 years of experience in applied macroeconomic and financial markets analysis.

Mike's career has been all about distilling the risks and opportunities of economic and financial market trends for business. Basically asking the "what does it all mean" question. Mike's enthusiasm and skill for drawing out practical, commercial insights from the murky world of economics has been honed over a relatively broad base of experience.

After spending the early part of his career on the tools at the Reserve Banks of both NZ and Australia, Mike had a lengthy stint at BNZ where he was NZ’s top-ranked currency strategist. His regular and topical macro research also saw him pick up several FX forecast accuracy gongs from Bloomberg.

Drawn in by the prospect of putting strategy into practice, Mike moved from Wellington to Auckland in 2013 to join Fonterra as GM Treasury Risk Management. In this role, Mike lead Fonterra’s macroeconomic research output, and was responsible for the strategy and execution of Fonterra’s foreign exchange, debt, and interest rate hedging programmes.