The Dec 09 UR: Terrible, but not

What the hell does my title mean.

Well, let me be straight up – the headline number is a lot worse than expected … especially by me personally.

However, the more general “underutilisation” measure (the number unemployed + the number of people who want more hours all as a proportion of the labour market) was in-line with what I felt were my overly optimistic expectations!

What does this suggest – well it sort of suggests that the people that were laid off during the December quarter were the people who wanted more hours in September, sort of (as we are excluding normal seasonal factors as well).

My opinion here?  The fall in hours worked points to a weak December, especially in conjunction with other partial indicators (QSBO, money supply, inflation expectations).

But so what, the past sucked.  Forward looking expectations are strong, our trading partners are genuinely recovering, and we have an intelligent Reserve Bank that understands how to balance inflation expectations and prevent arbitrary pain in the economy.  When we see hours worked pick up it is game on – that is the one to watch.

Economic activity will remain below trend for some time, unemployment will stay higher than we would like for some time.  But surprising even the shock of a much higher UR number is enough to suggest that the outlook is significantly worse than it was.  Why is this surprising?  If you had told me that UR=7.3% yesterday without telling me about underutilisation I would have been in a mild state of shock.  However, putting these numbers in context has eased my mind.

Update:  Other commentary at Rates Blog, Kiwiblog, Gonzo, the Standard, and No-Right Turn.

The unemployment issue is a lot more complicated then it is being made out to be methinks – it looks like NZ is undergoing a structural shift as well as a standard “recession”, blaming the government doesn’t make sense in this type of case.  For an example, look at manufacturing employment …

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  • Miguel Sanchez

    “What does this suggest – well it sort of suggests that the people that were laid off during the December quarter were the people who wanted more hours in September, sort of (as we are excluding normal seasonal factors as well).”

    But the December result wasn’t driven by layoffs – employment was only down a bit, and part-time employment was flat. So here’s a puzzle for you: where did the underemployed people go? They didn’t go into full-time work, because those numbers were down; they didn’t go into unemployment, because part-time jobs didn’t fall; and they didn’t leave the labour force, because the participation rate was up. So where are they?

  • @Miguel Sanchez

    “So here’s a puzzle for you: where did the underemployed people go?”

    I know, that absolutely did my head in when I went through the numbers!!!

    Ultimately, SA numbers often don’t add up. This is standard, but it is possible that one of the seasonally adjusted factors was funky – I wouldn’t be surprised to see (another) big revision of the quarter by Stats NZ before the March figures comes out in May 😛

    Also, as a note, there is no contradiction between talking about layoffs and employment being flat – those people can get laid off only for other people to rock into jobs. However, I do agree that the SA numbers don’t add up.

  • Miguel Sanchez

    You’re not the first one to raise issue with the seasonal adjustments – but I think in this case there was a problem with adding extra people, not making them disappear.

    To answer my own question, it’s possible that some people stayed in part-time work and decided they didn’t want extra hours after all. Hey, I said possible, not plausible.

  • @Miguel Sanchez

    “To answer my own question, it’s possible that some people stayed in part-time work and decided they didn’t want extra hours after all. Hey, I said possible, not plausible.”

    Actually, I like it. Its the discouraged worker effect, just coming through part time labour. Nice – I might have to borrow that 😉

  • Miguel Sanchez

    Not sure I’d credit it to discouraged workers. I guess it comes down to how the folks answering the survey perceive it, but I read this question as more of an aspirational thing than a matter of search effort – there’s no barrier to saying that you’d like more hours, even if you don’t believe those hours are available.