RBNZ unlikely to fall for labour market dummy

We haven’t materially changed our view of the NZ labour market following last week’s “rogue” unemployment number. Despite what you might have thought, unemployment was revealed by Stats NZ to have fallen in the three months to June (to just 4% no less), a period encompassing nearly all of lockdown and in which we estimate the economy went backwards to the tune of 17%. Of course, unemployment didn’t really fall. It’s more that Stats had some trouble with measurement and laid-off workers were unable to “actively” seek work during lockdown.

Some of the broader indicators we’d suggested following (e.g. hours worked, underutilisation) deteriorated markedly, and about as much as expected. Underneath the veneer of the wage subsidy, the jobs market is softening. And as roughly 450,000 workers roll off the subsidy in coming weeks things will get tougher. We still expect unemployment to rise into the “7s” in coming quarters, but have nudged out the forecast peak in unemployment to March 2021, from December.

We doubt the RBNZ will fall for the “dummy” offered by the Q2 labour stats. The RBNZ is forward-looking and will be wary of the fact employment is likely to undershoot its Maximum Sustainable Employment target for some time. This is part of the reason we expect the Bank to maintain a cautious tone at Wednesday’s meeting, despite NZ economic activity clearly exceeding its prior forecasts. We released a note last week ranking the options available to the Bank if it needs to ease monetary policy again. We argued that time is now on the Bank’s side now and it doesn’t need to announce further easing measures this week. But we could see some fine-tuning of its quantitative easing programme including a small lift in the current $60b cap and an extension to its expiry.

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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.