Regards, Gil Laurenson

A: Good question Gil.

I’ve also tended to assume the numbers leaving New Zealand must be flattering the unemployment rate.

We experienced a record net migration loss of 47,900 Kiwis in the year to August.

Most of those departures have been younger people headed for Australia.

That’s a lot of jobs that might otherwise have been filled.

Early this year, an Australian-based economist suggested to me that the unemployment rate (currently 5.3%) might be above 6% if it weren’t for that exodus.

But the economists at Westpac aren’t convinced that immigration has been all that material to the rate of unemployment.

“I don’t think it’s clear that all or even most of the people who have left would have been unemployed if they stayed,” Westpac chief economist Kelly Eckhold said.

“Moving overseas is a big step and takes a lot of confidence that you can successfully re-establish yourself offshore.

“These people may instead have held down a job here but accepted lower incomes compared to the opportunities they can see offshore.

“Hence, I am not at all sure you can just add all the leavers to the ranks of the unemployed in the hypothetical situation where they did choose to remain. Although certainly some of them would have been.”

I suppose you could argue that if the 49,700 had stayed, they might have displaced other workers.

But at that point, we need to step back and remember that, despite the exodus, New Zealand has maintained a positive net migration rate.

In the year to August there was a net gain of around 10,000, so we still had more people coming in for fewer jobs.

Certainly, the net migration rate is a lot lower than it was.

At the peak of the migration boom – in the year ended October 2023 – we gained 135,500.

It becomes a bit of a chicken-and-egg scenario at that point.

Migration is probably more driven by the labour market than the labour market is by migration.

It doesn’t make sense to imagine much higher numbers arriving in a weak labour market.

Migration is largely driven by employment opportunities.

Most people don’t pack up their lives and move to other countries unless there is greater opportunity in the place they are heading to.

Migration rates also have an impact on job creation itself. The higher the rate of population growth, the higher the number of houses that are needed, the more retail spending there is, therefore a greater amount of work needs to be done.

It all becomes a circular argument.

It’s possible that if more Kiwis had stayed home, the unemployment rate may have been a bit higher, but it’s also possible the economy wouldn’t have been quite so recessionary in the first place.

Participation rates

It has been noted that falling participation rates have flattered the topline unemployment rate.

People leaving the country are not in the labour force and so they are not included in Stats NZ’s labour force participation calculations.

The participation rate counts people in the country who are actively in the job market, whether they have work or are looking for it.

To a large extent, the fall in participation rates has reflected younger New Zealanders returning to school or further study as job opportunities have dwindled.

“What has been unusual through the current cycle is the extent to which this ‘flex’ in the labour force has been provided by teenagers,” Eckhold said.

During the post-Covid boom in 2021-22, the demand for workers was running hot, and the border closure meant employers were unable to fill those roles using migrant workers, he said.

“Instead, there was a sharp rise in the hiring of teens – from university students working part-time, right down to 15-year-olds dropping out of high school to earn some money.”

“But once the economy started cooling down and the border was reopened, businesses no longer needed to hire from this pool.

“That has seen the rate of teen unemployment rise sharply from its lows, but also many of them are choosing to focus on their studies full-time rather than actively looking for work.

“The result is that the teen participation rate has been steadily returning to its previous, arguably more sustainable, levels.”

Green shoots watch

This is week two of my new regular dose of optimism – (tinged with a bit of realism and a sprinkle of cynicism).

Last week, I looked at rising job ads, lower credit defaults, higher building consents and improved business confidence.

Let’s start this week with a bit of reader feedback on last week’s edition.

“Been hearing this ‘green shoots’ word for quite some time now and not one green shoot has carried on upwards or at least has not reported to have carried on. ‘Green shoots’ has become the go-to words really meaning ‘don’t get your hopes up because nothing’s probably going to grow anyway’.”

Roy H

“Has anyone out there got an electron microscope that we could borrow?”

Geoff B

Okay, I get that “green shoots” is a loaded term. It can be politically motivated and is highly subjective.

So let’s be clear, the emergence of green shoots doesn’t mean the economy has recovered and ordinary people are feeling better off.

Just consider the metaphor in terms of a real garden.

The arrival of green shoots doesn’t signal it is time to start making a salad.

It just means there is evidence of fresh lettuce and tomatoes in the near future.

What we are looking for here is evidence the shoots are growing.

There have been a few snippets of positivity in the past week.

The labour market data we talked about above wasn’t flash. But that bad stuff was largely as expected.

There were no ugly surprises, and although unemployment and underutilisation continued to rise, there were positive signs.

Employment growth was flat. But flat beats the previous four quarters, when it fell.

Also, the measure of overall hours worked actually rose 0.9% in the quarter – the first quarterly increase in seven.

Tuesday also brought some marginally positive data from the ANZ, with its card spending release showing a rise of 0.1% in October.

Okay, that’s not up by much, but it’s not down.

Spending was up 3.2% compared with the same time last year.

ANZ chief economist Sharon Zollner noted more positive trends were emerging.

“Durables spending is very cyclical, and has the strongest annual growth, at 6.3%,” she said.

Big week ahead

Focus the lens of your microscope, because the next week is a good one for the kind of second-tier data that often provides the beast with early clues to prevailing economic trends.

BNZ’s Doug Steel produced a useful summary of what to expect in a report on Monday.

“Forward-looking indicators have been promising some improvement in activity,” he said.

The focus would be on looking for some “signs of the promise translating into actual activity”.

Later today, we will get ready-mixed concrete data for the September quarter.

If you want some hard data (pun intended) on the state of the construction sector, this is a good one.

Not much gets built without concrete foundations.

Output is well down on last year, and there was a slump of 5.9% in the second quarter, Steel noted.

On that basis, any kind of rebound has got to be a good sign.

As mentioned, building consents have risen sharply. We should expect demand for concrete to follow that trend.

On Thursday, we get new monthly data for electronic card spending, immigration and short-term visitors (tourism).

Consumer confidence remains weak, so we shouldn’t expect a big bounce in spending just yet.

But a continuation of the modest growth we’ve seen in the past few months would be an encouraging sign, Steel said.

The tourism rebound has been gathering momentum in the past few months – nudged along by a decent increase in Aussie visitors.

We should expect to see further signs of recovery on Thursday.

We might see the numbers for September rise by nearly 10% from a year ago, Steel said.

This would still have total visitor numbers below their September 2019 peak, but the prospect of closing the gap finally looks to be in sight.

Immigration numbers are another story.

Lower net migrant inflows have been a headwind to growth over the past year, from both a demand and a labour supply perspective.

There isn’t much incentive for a residential house building recovery while population growth remains so low.

And as discussed above, low migration may be further dampening job creation, even if it is alleviating demand for work.

Hopefully, the numbers of people leaving are coming down from record highs, although there is unlikely to be a big increase in numbers of migrant arrivals until the job market improves.

On Friday we’ll see the BNZ Business New Zealand Performance of Manufacturing Index (PMI). On Monday, we get its sister survey, the Performance of Services Index (PSI).

Both are monthly surveys of businesses in the respective sectors.

“They have been generally weak with only the occasional blip higher offering any hint of improvement over recent months,” Steel said.

“The combined PMI and PSI activity index would need to lift soon to be consistent with the sort of underlying economic growth rates we and others are forecasting.”

So no pressure – but they better be good!

Finally, next Monday, we’ll also get a read on how inflation is tracking with the Selected Prices Index for October.

The update on the rate of price increases for food, accommodation and transport represents nearly 50% of the Consumers Price Index (which we get quarterly).

It should show inflation continuing to ease. That’s a symptom of the sluggish economy, so not exactly a green shoot. But it will pave the way for the Reserve Bank to cut rates again.

Economists expect at least one more 25 basis-point-rate cut when the RBNZ meets again on November 26.

Liam Dann is business editor-at-large for the New Zealand Herald. He is a senior writer and columnist, and also presents and produces videos and podcasts. He joined the Herald in 2003. To sign up to his weekly newsletter, click on your user profile at nzherald.co.nz and select “My newsletters”. For a step-by-step guide, click here. If you have a burning question about the quirks or intricacies of economics send it to liam.dann@nzherald.co.nz or leave a message in the comments section.