Unemployment rate rose to six year high in 1Q

New Zealand: unemployment rate rose to six year high in 1Q

*Employment contracted 1.1%q/q in 1Q
*Unemployment rate rose to 5.0%
*Labour force participation rate tumbled

Employment in New Zealand contracted 1.1%q/q in 1Q (J.P. Morgan and consensus -1.0%), falling much in line with expectations, after unexpectedly increasing 0.6% in the final three months of 2008. The rise in the unemployment rate was milder than forecast, though it was the fifth straight quarterly rise, marking a prolonged period of deterioration in the New Zealand labour market. The jobless rate rose to a six year high of 5.0% in the March quarter, from 4.7% in 4Q.

Owing to positive net permanent migration, the working-age population expanded in 1Q, helping push the labour force participation rate down from 69.1% to 68.4%. More indicative of the weakness in the labour market, though, was the increase in the number of underemployed. According to Statistics New Zealand, of the 473,500 people employed part-time in the March quarter, 21.1% wanted to work more hours, up from 19.3% in the previous quarter.

Though the rise in the unemployment rate was less than expected in 1Q, we suspect that labour market conditions will deteriorate further in 2009. With business confidence at multi-decade lows, companies are reluctant to hire new staff, instead choosing to shed workers to cut costs. The recently released 1Q NZIER quarterly survey of business opinion signaled that the recession underway may be more prolonged than we currently forecast—a net 65% of firms expect the economy to deteriorate in the next six months, with firms the gloomiest about their own prospects since at least 1970. The dominant risks to our forecast for two more quarters of negative GDP growth, extending the four straight quarters of decline in 2008, are to the downside. We, therefore, maintain our forecast for the unemployment rate to rise above 7% by year end.

ENDS

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