NZ dodges Delta = RBNZ on track for 6’Oct hike

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While it’s well known that NZ is loosening lockdowns as they get on top of Delta, what isn’t clear is how much the lockdowns have set things back. That’s important, because it’ll determine how quickly the RBNZ can get back to their original plan of raising rates. Yesterday’s weekly paid jobs release suggest that there’s little damage, which means the RBNZ has a clear path to a hike at their next meeting, on 6 October.

While the 17 August ‘snap lockdown’ has yet to roll into the 20-day and 34-day jobs series, we do have the (noisy) 6-day series up to the week-ending 29 August. That shows that employment grew in late August, despite the lockdown (the green line in the below chart).

This is important for gauging the state of the economy, as the 6-day employment series has been the most sensitive to COVID/lockdowns. That makes sense, as it fits the employment characteristics of the sectors which are most impacted by lockdowns. You can see in the below chart that services employment (the red line) did worst across the lockdowns (don’t pay too much attention to the purple line, Primary sector employment, as it’s very seasonal).

Zooming into the past few months, you can see that there’s been a very small decrease of Services and a dip of Goods-Producing employment in the week ending 29 Aug (following strong growth the week before) due to the Delta-lockdown.

Over the two weeks since 15 August (the level 4 lockdown started on 17 August), Aggregate employment is up by 6.5k. This is due to an increase of good producing and unmatched employment. Services employment is down only 3k.

The level of Primary sector employment is low at this time of the year — so that could be dampening the signal. However, I doubt that it’d be down given the other information we have. Finally, it should be noted that the seasonal upswing of the NZ Primary sector is about to start. While the sector is small (peaking at 5% of total employment), the delta is both large and sharp (it’ll swing up around 150bps).

This will provide a tailwind that coincides with the re-opening, which will make things feel pretty good into year end. That will make it pretty easy for the RBNZ to hike on 6 October, and probably again on at the MPS on 24 November.

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