Kiwiblog

Very weird to go from breaking 80c for the first time in decades, to dropping below 50c in under a year.

I hate it when things start to cost more.

It has recovered to 59c today, due to action in the US but that has to be the largest and steepest drop since the dollar floated.

Down to 60c. Farmers will be happy but this means more price increases for most Kiwis.

Ben Thomas at NBR reports on how the Reserve Bank has gambled a massive $4.2 billion on currency speculation in the last year.

This has all been through way of sales of NZ dollars. The Reserve Bank is hoping it can then buy the dollars back in the future when the exchange rate is lower.

I have to say I prefer to do my own currency speculation, rather than have the Government do it for me.

Today’s release of the March 2008 Household Labour Force Survey confirms that there is a downturn, with the first significant decrease in jobs since the Asian Crisis of 1997/98.

Now Labour in the 1990s tried to blame all of that downturn on the then National Government. I prefer a more rational analysis, and both National in 1997 and Labour in 2008 can’t be primarily blamed for what is essentially a global problem. However both Governments do have responsibility to have the economy as free and resilient as possible to mitigate the effects of global events.

So what has happened in the last quarter:

• Those in employment have dropped on a seasonally adjusted basis by 29,000, wiping out the gains since December 2006
• The number of people unemployed rose by 4,000 – a 5.2% increase from 77,000 to 81,000
• The number of people not in the labour force increased by 35,000 – so these are people no longer looking or available for jobs. The labour force participation rate has dropped to 67.7% – at least a two year low.
• Most of the fall in employment has been amongst under 25s
• Unemployment rates (non seasonally adjusted) by ethnicity are Europeans up from 2.2% to 3.0%, Maori from 7.2% to 8.6%, and Pacific from 4.8% to 8.2%
• Wellington appears to have the largest rise in unemployment – from 2.5% to 5.0%
• The total number of jobless people (this includes those not available or looking for work) rose from 145,900 to 181,800
• The number of actual hours worked in the quarter is the lowest since March 2005

Now I think the HLFS has exaggerated the decline somewhat. The HLFS is basically just a big opinion poll. It has a large sample (17,000 off memory) but that still leaves a sampling margin of error. I don’t think there has actually been 29,000 jobs go in the last quarter. But certainly there has been some decline.

The above graph, at The Visible Hand in Economics, shows the market reaction. The concern is not over the decline, as much as the size of the decline.

The only good news is that the chance of a lowering of interest rates this year is now higher. But food and fuel inflation will still make this a risky call to make too early.

No Right Turn blogs that he believes the NZ First advertisements do breach the Electoral Finance Act as “a reasonable person would regard it as an encouragement to vote for NZ First”. I agree. As Idiot/Savant says it is not a survey, it lays out policy and encourages approval of it.

Poneke has more on the BBC story on climate change which got modified. The reporter denied he did it under pressure, but an activist has blogged she successfully pressured him to change it.

The visible hand in economics looks at fixed vs floating exchange rates.

The DAFT Party has a solution for China over Tibet. It is to rename China to Tibet, and declare they are all Tibetians. The PRC Government should see the sense of this now they are running a market economy – you replace a tarnished brand with a more positive brand!

Bernard Hickey has video and a blog post on Alan Bollard’s speech suggesting we are talking ourselves into a recession. Bernard says we’re not, and if we do have a recession, it is because we deserve it! Them’s fighting words! It’s a lengthy excellent post with many graphs.

The NZ$ hit a new high against the US$ dollar today. The above graph shows monthly averages except for Feb 08 which is yesterday’s peak.

NBR and NZPA report that we hit 81.5c and some traders are picking 90c.  Earlier forecasts were for a peak of 83c to 95c though.

Also of interest is  Westpac is picking the Reserve Bank to increase interest rates twice this year. Ouch. But an interesting call from the Canterbury Manufacturers Association for a variable rate compulsory superannuation saving scheme. So when inflation starts to increase, you increase the compulsory deduction rather than put interest rates up.

It’s a nice idea but will only affect personal consumption but business activity, so I am unsure whether it would be as effective as the cash rate.  But just like Don Brash’s suggested variable petrol tax – it would be good to model.