Lack of economic crash confuses economist

The lack of a sudden economic downturn is baffling economists, with one saying the drawn-out slowdown is "not like anything that we've experienced in living memory".

The New Zealand economy held up well in the post-global financial crisis years, and at one point earned the label "rock-star". But a decade on from the big crash, there hasn't been another - not even a little one. 

"Typically we have strong economic growth and then we have a sudden kind of downturn, then we pick back up again," economist Shamubeel Eaqub told The AM Show on Thursday.

"But we've had this very gradual, everything's been very slow, kind of slow-moving, very sluggish. It's been a very weird cycle - not like anything that we've experienced in living memory. It's very gradual."

Wednesday saw Statistics NZ release the latest unemployment figures - up slightly to 4.2 percent. National Party finance spokesperson Paul Goldsmith said the Government was "hurting key sectors of our economy".

But buried beneath the headline figure of 4.2 percent unemployment - "still very low", according to ASB economists Nick Tuffley and Mike Jones - was that full-time employment is actually up 0.6 percent. The increase in overall unemployment came from a 2 percent fall in part-time unemployment. 

Unemployment in NZ, 2007-2019.
Unemployment in NZ, 2007-2019. Photo credit: Statistics NZ

And the underutilisation rate - which includes the unemployed and those who aren't working as much as they'd like - is down 0.6 percent. 

"The details of today's wealth of labour market data were probably a little stronger than the lift in unemployment would imply, on its own," ASB's economists said.

Unemployment peaked in 2012 at 6.8 percent, and has been trending down since. It's still lower than it was when the Labour-NZ First coalition came to office.

Shamubeel Eaqub.
Shamubeel Eaqub. Photo credit: The AM Show

Eaqub says the "good times" have lasted a decade, and we're due for "a hiccup of some sort, bit of a slowdown". But there's little sign it's coming.

"We're not used to this kind of thing - it's very unusual."

Goldsmith also said the slight bump in unemployment was a "warning sign that companies just cannot afford to hire new workers". The statistics showed wage growth is at a 10-year high, partly in thanks to massive wage settlements with the likes of nurses and teachers

"In the September 2019 year, 48 percent of salary and wage earners achieved a wage increase above 2 percent over the last 12 months, with just 40 percent reporting no annual increase, the lowest in 10 years," Tuffley and Jones said. "Median increases remained at last quarter's lofty 3 percent [year-on-year]."

Eaqub said this is common ahead of economic downturns. 

"Firms are finding it just so hard to hire people, they're having to pay up. Especially if you think about IT, construction, a lot of professional services - there's just not enough people. 

"There is a mismatch. If you look at where the unemployed are and where the demand is, most of the demand is for highly skilled folk - but most of the unemployed are not necessarily of the same group of people. The lack of matching of labour markets is always a problem."

Immigration can plug the gaps, he said, but this has the side-effect of discouraging investment in further education for locals, prolonging the problem.