Thursday, April 09, 2020

Second-guessing the economy

Many commentators refer to the Global Financial Crisis and the unemployment rate peak of 6.7% in September 2012 as a reference for how high the rate might go in the next few months.

There are two earlier periods which we will probably surpass.

"... in September 1933 almost 80 000 men were registered as unemployed or were working in subsidised employment; that figure—at about 12 percent of the work-force—does not include boys or men who did not register because they were not eligible for relief."

Then after the eighties recession unemployment reached 11.1% in March 1992.

There is an entire industry, tourism, which accounts for one in 12 workers or 8% of the workforce which has died for the mean time. There are thousands of retail workers who won't resume because spending power won't allow it. Many small businesses will survive but with a straitened structure and fewer employees. The tertiary education sector which relied so heavily on overseas students will struggle. Media is shedding badly. Forestry stalled. Etc.

In December 2019 unemployment sat at 4%.

The rate is measured by surveying a sample of the population continuously (while refreshing that sample.) The next figure due for report is the end of the March quarter. That will only provide a preliminary number.

Apparently Grant Robertson has been promising up- to- date data on benefit numbers, also not due to be released until late April. Maybe we will see something today. Paul Goldsmith has rightly been putting the pressure on.

Expect increases across all benefits but obviously and especially on the Jobseeker benefit.

I will make a prediction with all the confidence that I try to pick the score in an All Black match at the TAB.

At end of March 2020 an unemployment rate of 8 percent rising to over 12 by the end of the June quarter.

A rise in Jobseeker numbers from 147,000 to over 200,000 at the end of March rising to over 300,000 by the end of the June quarter.

Watch also for the Sole Parent Support Benefit to climb as couples decide they are either psychologically and/or financially better off 'separated'. And the Supported Living Benefit to climb - but to a lesser degree - as people with psychiatric and psychological conditions increase, and elective surgery is delayed.

These numbers are very conservative.

1/ Some made redundant will have earning parents and partners which will mean they cannot qualify for a benefit. Families can and will absorb albeit their discretionary dollar will vanish.
2/ The wage-subsidies will also suppress numbers temporarily.
3/ New Zealanders will take up the jobs that can't be filled by overseas workers
4/ And we have one major difference between now and the Depression , and even the early nineties. Credit availability.

It is nevertheless entirely reasonable to expect that half a million people will be on benefits by mid winter. The thought chills me. I'd love to be proved wrong.

Update: Report from the Epidemic Response Committee. A tad over 1 in 25 applications granted? Must be a typo. (Since checked with reporter and it was a typo.) But even 25,000 in one week is one hell of a lot of applications.

Sepuloni said that as of the end of March, there had been an 8.2 percent increase on a year ago in people receiving the main benefit, and revealed a 15 percent increase in people receiving Jobseeker support. 

But Sepuloni clarified that the data only goes up to 27 March, so it doesn't cover the entire March period, and Upston said because of that, it doesn't even reflect the scale of the crisis. 

"What's been happening since 27 March?"

Sepuloni replied, "You can expect an increase, that's for sure."

She said last week MSD received 250,000 benefit applications, but siad some of them were duplicates and some applications may not be eligible, so it's not an accurate reflection of how many people have been approved since 27 March. 

Last week, 10,700 benefits were granted, the majority of which were Jobseeker benefits.

1 comment:

The Veteran said...

An entirely plausible scenario made more so by the absence of any coherent plan by the government detailing a pathway forward for the economy post the lock-down (except perhaps a further increase to the minimum wage due to take effect on 1 April 2021 ... the mind boggles).