Greg Smith, an investment manager at Devon Funds, wanted the Reserve Bank of New Zealand (RBNZ) to go hard and fast on cutting the official cash rate, suggesting a 75-basis point cut at its most recent meeting on 27 November.
His reasons: the country’s economic data is dire, the economy is in recession, and unemployment is on the rise.
That latter is affecting more households, limiting their ability to service loans and causing higher levels of bad debt. Some banks have reported that many highly indebted households have little income or savings buffers available, leaving them vulnerable to surprise costs or loss of income.
Four-year high
Unemployment has risen to a near four-year high, with Stats NZ numbers showing an annual unemployment rate of 4.8% for the three months ended September compared to 4.6% in the previous quarter.
While the Reserve Bank will be pleased the figure came in under the 5% unemployment rate they expected, 4.8% is still the highest rate since December 2020.
Biggest losers
Redundancies in the public sector have made the biggest headlines. More than 2,000 public service jobs were cut in the six months from December to June this year. In total, nearly 7,000 jobs have been axed across the public sector. However, many of them were vacant. Overall, the public service experienced a small increase (0.7%) in full-time staff numbers in the year to June 2024.
The picture is much bleaker for the manufacturing and services sectors. Manufacturing is in particularly bad shape, recording its 19th consecutive quarter of contraction.
Figures published in the recent Institute of Economic Research’s Quarterly Survey of Business Opinion (QSBO) showed a staggering net 55% of manufacturers reporting layoffs in the last quarter. This is the worst reading in the history of this series, which dates back to 1961.
Big picture
Last year, 45,700 people who had been employed became jobless, according to Stats NZ labour market figures. There was also an increase of 57,000 in those leaving the labour force, which was variously explained as more studying, disability, retirement, and being discouraged from seeking a job.
It is little wonder wages growth has slowed to 3.8%. Private sector wages rose 3.3%, the lowest in in two years, but public sector wages were up 5.6%, reflecting recent pay settlements.
Despite these drab stats, the New Zealand economy still stands on reasonably firm ground. The RBNZ six-monthly financial stability report (FSR) stated that while debt-servicing costs generally remained high, and rising unemployment was likely to cause more borrowers to default on their mortgage payments over the next six months, debt servicing costs were dropping as interest rates continued to fall. Current defaults were below levels seen in the Global Financial Crisis and were at manageable levels for banks, it reported.
Don’t despair
Think ‘green shoots’ or “sparks of life” as consultancy Infometrics describes the likely state of our economy midway through next year. And while Chief forecaster Gareth Kiernan was picking unemployment to peak at 5.4%, the lure of Australia’s more buoyant labour market and reduced immigration numbers would likely drive a downward shift in the unemployment rate in this part of the world.
MBIE’s medium to long-term employment outlook, titled ‘Looking ahead to 2026’, is also picking a much-improved situation for job seekers. They expect employment to grow by 1.8% annually, adding about 47,000 workers on average per year to 2026.
Business services and construction sectors are forecast to have the strongest employment gains, adding 7,600 per year and 5,600 per year, respectively.
The job market is close to turning a corner. Let’s see how that changes the country’s damp housing market. Thinking of selling? Call 0800 GOODWINS for an appraisal.
