New Zealand employment jumps

New Zealand employment jumps
Recovery was underway before quake

Today's employment data provides further confirmation that the New Zealand economy was already in a solid upswing before the quake struck Canterbury in late February. Employment jumped by a strong 1.4% in Q1, to be back above previous peaks. The unemployment rate fell to 6.6% and would have fallen much more but for a sharp rise in the participation rate. With the quake's economic effects likely to be fairly isolated to Christchurch, and business surveys showing a post-quake improvement in confidence, we continue to expect the RBNZ to lift rates in Q4, though there could be a case for lifting them sooner.

Facts
- The unemployment rate fell to 6.6% (consensus was 6.7% and HSBC expected 6.5%) in Q1 2011.
- Employment increased by a strong 1.4% in Q1 2011, the largest rise since Q2 2008, to be 1.8% higher over the year.
- The participation rate rose from 67.9% to 68.7%, its largest increase since Q4 2008.
- Full-time employment increased by 0.5% and by 1.6% y-o-y.
- Part-time employment rose by 4.0% and by 2.5% y-o-y.

Implications
Today's employment numbers show that the New Zealand economy was already recovering when the earthquake struck Canterbury in late February. This is consistent with the RBNZ's reports from their liaison, early in the year, of improved business conditions around the turn of the year.

While the unemployment rate only fell by 0.1pp to 6.6% (we had expected a fall to 6.5%) this measure understates the strength of the employment numbers. Employment rose by a very strong 1.4% in the quarter, its largest increase in almost three years. Also, a key reason the unemployment rate did not fall further was that the participation rate rose by a solid 0.8pp. It seems that many more workers had decided to once again start to look for work in Q1; a sign of improving confidence. Indeed, had the participation rate not risen so strongly the unemployment rate could have fallen into the 5s!

Looking across the components of employment also shows a positive story. Full-time employment has now risen for five consecutive quarters and is back above previous peaks. While volatile, part-time employment showed a sharp rise in the quarter.

So while we expect the earthquake will disrupt economic activity, particularly in Q2, we remain of the view that the main effects will be fairly localised to Christchurch. This is borne out in recent business surveys (see The RBNZ Observer, 26 April 2011). The quake is also unlikely to have a large effect on the labour market, with firms well aware that they require workers to do the necessary reconstruction and repair of Canterbury. More broadly, the economy is also getting a boost from the high meat and dairy prices and the forthcoming Rugby World Cup.

Bottom Line

All in all the employment report was strong for Q1. This suggests a recovery was underway before the quake.

We remain of the view that the quake's effect will be fairly geographically concentrated, and that the rest of the economy will continue to recover.

We expect the RBNZ to lift rates from emergency levels in Q4, though there is likely to be a case for raising them sooner.

Paul Bloxham, Chief Economist (Australia and New Zealand)

© Scoop Media