Kiwiblog

Colin Espiner blogs on how Ruth Dyson is always seeing the bright side:

Everyone loves an optimist, so Labour’s Ruth Dyson must be amongst the most-loved MPs.

Her press statements on rising unemployment are always full of good cheer, and Dyson somehow seems blithely unaware of the gloomy economic conditions.

Back in May she caused something of a stir by putting out a press release headed “Labour Force Survey Reflects Stability In The Face Of Economic Challenges”. You’d have thought the unemployment rate had defied the economic downturn and things remained sunny. In fact, the survey reported the biggest jump in jobless in nearly 20 years.

Likewise, today’s next quarterly report on the unemployment rate, which finds an additional 7000 people have lost their jobs in the past three months and the unemployment rate now up another 0.2% to 3.9%, is welcomed by Dyson in a release entitled “New Zealand Economy in Good Hands”.

Ruth should have been a Minister when we had the Erebus crash. She may have done a press release highlighting the decline in carbon emissions due to no return trip!

I think Dyson’s skills are being wasted as Minister of Social Development – she could do wonders in the Treasury or the Reserve Bank. Under this minister, Treasury’s report this week warning of recession could have been headed up: “More good news likely on economy” and the bank’s gloomy predictions of 5%-plus unemployment could have been rewritten as “It’s all good here, too”.

Colin does go a bit fuzzy later on with petrol prices though:

Labour will be extremely grateful to whoever bugged the National Party conference for taking bad economic news off the front page. It’s even possible that today’s whitewash from Dyson’s Christchurch colleague Lianne Dalziel on petrol prices will equally disappear with nary a trace, given the media’s perchant for a decent whodunit.

It’s hard to swallow the minister’s recommendation that nothing needs to be done about regulating an industry making $11 billion profits a quarter because it is “fundamentally competitive” and that, essentially, the idea that petrol prices are fast to rise and slow to fall is simply a myth perpetrated by the media.

A more cynical journalist than myself might suggest that the government has several interests in not forcing down the price of petrol; for one thing, the GST take is much higher when prices are high, and for another, the high petrol prices are forcing some vehicles from the road, which is helping with emissions targets.

I think Colin is being a bit hard on Dalziel here. First of all the NZ oil companies do not make $11 billion profit a quarter. The NZ Govt has no power to regulate the global oil companies, which I presume that $11 billion refers to. It is a red herring figure. And a profit figure is meaningless anyway unless one knows what the turnover or capital was. An $11 billion profit on a $1 billion equity company is a universe different to an $11 billion profit on a $100 billion equity company.

Secondly it is a “myth perpetrated by the media” that higher petrol prices leads to much higher GST. Because the money spent on petrol is not spent on other goods and services, reducing GST collected there. Hence overall GST does not rise greatly, if at all, with higher petrol prices.

Colin is right though that the higher petrol prices may help with reducing carbon emissions.

The number of people unemployed rose by 7.000 in the latest Household Labour Force Survey. This saw the unemployment rate go up to 3.9% (a two year high). It is forecast to make 6% by the Reserve Bank.

The number of people in the labour force and employed also increased. I am not surprised as I thought the fall in the last quarter of 28,000 was too extreme, and that rebounded this quarter.So the economy may not be as weak as some have thought.

I’ve been going through the data on which the Reserve Bank based their announcement today that they intend to lower the OCR later this year. It is not pretty:

• Inflation projected to hit 4.7% by September 2008 – this will be the highest inflation has been since December 1990.
• Economic Growth to slow to under 1% in 2009
• The lowest level of house sales in 18 years
• A drop in the TWI from over 70 to around 60
• A rise in unemployment from 3.6% to 6%
• A drop in house prices of 13%

I almost pity Bill English who is likely to inherit this. Not as bad as 1990 but nothing like the booming economy Dr Cullen inherited in 1999.

The summary is NZers will have almost big price rises, low economic growth, around $70,000 knocked off the value of their family home, and around 50,000 more unemployed

The MPS noted:

Faced with lower nominal income growth and higher consumer prices, households must decide whether to take on extra debt or lower their standard of living.

What a lovely choice. However the Reserve Bank hints at an answer:

Many households will need to devote a high proportion of their income to debt servicing costs, limiting their discretionary spending. High global food and energy prices will have a large impact on the spending power of households. The domestic prices of these goods will be pushed up further by a weaker New Zealand dollar. The tax cuts and increased transfers announced in Budget 2008 will provide some offset to these rising costs over late 2008 and early 2009.

So further tax cuts would provide further assistance to households facing a choice between extra debt or lower living standards. Labour is crying that further tax cuts will mean cutting of public expenditure. So they seem to be saying that households should cut their standard of living, rather than have the Government cut its expenditure!

All three metro editorials today are on the employment figures. We start with the NZ Herald:

More worrying, the latest quarterly employment survey suggests the number of people in jobs has declined on a scale unseen since 1989. The drop in employment can be greater than the rise in unemployment because the latter excludes people who are not actively looking for another job.

Then the Dom Post:

Social Development Minister Ruth Dyson may want people to think it’s “a very small change, actually” but the biggest fall in employment since the 1980s should not be brushed off by politicians or by Reserve Bank Governor Alan Bollard, writes The Dominion Post. …

There is little room for the blithe optimism of Ms Dyson, who told Radio New Zealand after Statistics New Zealand data showed a fall of 29,000 or 1.3 per cent in seasonally adjusted employment during the March quarter, that people should not over-react. Those who have lost jobs or who are finding it harder to get one will be more inclined to accept the view that the figures are, as Westpac economist Brendon O’Donovan said, “an absolute shocker”. …

Dr Cullen has continually preached that he knew how to spend money better than those who earned it, and refused to deliver tax cuts. He argued that if he left more in workers’ pockets they would only spend more and fuel inflation. At the same time he indulged his ministers, and allowed a rapid growth in government spending that contributed to the Reserve Bank keeping interest rates high. That spending has too often been of low quality, or designed to serve a political purpose rather than deliver a real benefit to taxpayers. The absurdity of maintaining the district health board bureaucracy when the real decisions are still made in the Beehive is just one illustration of that.

The hope must be that as Dr Cullen has drawn up his Budget he has taken a rigorous look at spending to ensure that it is delivering maximum efficiency, and not incidentally to reduce the pressure from government spending on inflation.

And finally The Press:

The statistics appeared to suggest that this was not the case. In the first three months of the year, the economy lost 29,000 jobs. More than 24,000 dropped out of the labour force — they were no longer counted as being in work or looking for it — and unemployment went up by 4000, or 5.5 per cent. It was all the more surprising because it came after an uninterrupted spell of rosy employment news and was the largest decline in employment in 19 years. …

Funnily enough, none of the newspapers are agreeing with Ruth Dyson that the loss of 29,000 jobs is not bad news at all actually, or that it is insignificant.

As economists are describing the fall in employment of 29,000 as “very grim” and “an absolute shocker”, Ruth Dyson plays Chicken Little and says there is nothing to worry about.

The Herald quotes her as saying:

“Compared to 12 months ago, the employment levels are 0.2 percent below that level. So this is not a dramatic change if you look at the overall picture ,” she said.

“I don’t think that this is bad news at all actually, the fact we’ve got 350,000 more jobs than we had when we were elected (1999) to lead the Government should be very good news for New Zealand.”

This is why Governments get thrown out as they stay in office too long. No Minister should ever say that losing 29,000 jobs is not bad news. It is arrogant, uncaring and out of touch.

The comparison to a year ago is somewhat misleading. The fact is the drop of 29,000 in a quarter is the biggest drop since 1989. It has wiped out all the growth from the previous three quarters, and more. It is a 1.3% drop in just one quarter.

Normally over a year one has employment growth of close to 2%, so a 0.2% decline over the year is significant.

Dyson should have talked about the challenges of global turbulence etc, rather than pretended there was no problem at all and that 29,000 less jobs is “not bad news at all actually”.

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.