Fran O’Sullivan puzzles over the Prime Minister’s completely bizarre (non)reaction to the rise in unemployment over the September quarter:
For Key to simply shrug his shoulders on this score doesn’t cut it.
If he was gazumped by the awful statistics, so too were the nation’s economists when official figures confirmed the unemployment rate was the highest it has been since June 1999. “A true shocker,” said Westpac.
Fundamentally you would have to wonder if they have all had their eyes wide shut in recent months while export-orientated companies have cut heaps of jobs in response to more difficult environments overseas.
Key – and the economists who have been caught short by the official statistics – will be hoping the September outturn in the Household Labour Force Survey is a statistical aberration. Westpac has pointed out the survey has a history of throwing up “wild false signals”.
The Reserve Bank was also caught out by the September quarter figures. The central bank has been urged to slash interest rates further in the hope this will depress the value of the NZ dollar, boost export competitiveness and spark firms to hire more workers.
If I understand the new RBNZ Governor Graeme Wheeler – already dubbed ‘Asleep at the Wheeler’ by financial journalists – correctly, he doesn’t need quantitative easing or any other macro-prudential tools because he still has room to cut rates, but he can’t cut rates any further because it would probably lead to increased indebtedness in the household and dairy sectors.
So we have high and rising unemployment, an over-valued currency, very low inflation, our central bank won’t lower rates and it doesn’t want any additional tools to address this situation. The Prime Minister’s reaction is to hope that the statistics are wrong, and keep on doing what he’s doing, which doesn’t seem to be anything. This seems completely insane.
I do wonder if there’s a feedback loop operating here between the Treasury forecasts and the National government. Treasury predict growth, low unemployment and high inflation because there’s a right-wing government in power, and the government reads the forecasts and does nothing, because they don’t need to – prosperity is on the way, Treasury said so!
UPDATE: Matt Nolan has a substantive reply. Short version:
The RBNZ currently believes that, after loitering at a high level for a few more quarters, the unemployment rate will come down sharply. Furthermore, they believe that current high unemployment IS due to weak demand – so if they could go back in time they would cut rates but RIGHT NOW cutting rates looks inappropriate.
If nothing else, this will be an interesting field trial for central bank independence. Many of the opposition parties would currently direct the RBNZ to act . . . if they could.