Matt Nolan

Unemployment rate will be ….

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Everyone agrees that the key number to look out for today will be the unemployment rate – although significant declines in hours worked and employment will also be of interest. There is talk of unemployment reaching 4.7% in the market – I’m a little more pessimistic, but lets just put that to the side. Update: iPredicit is picking 4.8% 1 hour before the data is released.

An unemployment rate with a 5 in front of it will be a negative shock to the market – and would indicate that unemployment has risen very rapidly. Personally I believe that if this recession is really turning into a demand side slump this is what we will see.

An unemployment rate of less than 4.5% would make me very suspicious about where our economy is going. Sure it would still be an increase in unemployment, which isn’t nice. However, 5% is still the “neutral” unemployment rate in our economy. If unemployment is under 4.5% then I would be forced to upwardly revise my view of the NZ economy – and question why the RBNZ has cut rates so far.

Note: The reason I am so pessimistic about unemployment is that, given the growth numbers (and expectations) people are throwing around we would HAVE to see a sharp increase in unemployment. I don’t find call of a 1.3% fall in output and a 6.4% peak in unemployment consistent …

Matt Nolan

Where the RBA and RBNZ don’t agree

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Following yesterday’s 100 basis point rate cut by the Reserve Bank of Australia, a statement was released that appeared to indicated that this could be the END of cuts by the RBA.

This surprised me, given that the RBNZ has stated that it is looking at cutting rates. At 3.5% our cash rate is only 25 basis points higher than the Aussie rate – implying that we might cut BELOW our neighbours, which would be very unusual. Why?

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Matt Nolan

On the RMA reforms

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So the National government is reforming the Resource Management Act, interesting.

Now anyone that says the changes are to help “during the crisis” is tripping – changing the RMA is a structural, long-term, issue not a “stimulus” issue. Framing it as a stimulus issue may help National to sell it – but that is not really why, or why they should be, doing it.

From listening to people (and reading this from Nick Smith) talk about it there appears to be three main thrusts of attack on the RMA:

  1. Stop the use of the RMA as an anti-competition device,
  2. Reduce the ability of the RMA to be used as a “hold-up” device against initiatives.
  3. “Streamline” consents of “national interest”.

The first change is brilliant and well needed – any policy that can be used in an anti-competitive fashion needs to have provisions to deal with it.  The second concept is also very true – there are times when people use the law to increase the return they will make from the consent, this is no good.  However, the third concept is a bit dodgy for me – I think we need to be a bit careful when using it.  Here is the way I see “national interest”:

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Matt Nolan

Question: Bank funding

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Tell me, why is the six month deposit rate at its lowest level since December 1970 if it is so hard for bank’s to get funding?

Apologises for the lack of posting and commenting lately – I am close to infinitely tied up with other exciting forms of economics.  I will try to write a few posts to turn up on a time delayed basis tonight.  Answering your intelligent comments will take a little longer – but I will try to give it a go during the weekend 🙂

Matt Nolan

The value of a brand

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Kiwiblog links to an interesting story about Vodaphone Vodafone (fixed for my illiteracy). In the story Vodafone begun charging for sending out paper statements after setting up a text statement service. Sure enough customers were unhappy – so they reversed the decision and now are not charging for the statements again.

What was important for me wasn’t what they are doing – but how they are doing it. They termed the change their mistake and that they were now listening to what their customers told them. Whoever decided to make this u-turn obviously knows what happened with New Coke.

In the case of New Coke, the Coke company replaced Coke with a new receipe – but some deeply loyal customers were hurt. When Coke turned around and stated that it made a mistake and changed the formula back they experienced an increase in market share (beyond initial levels) – and customers said they felt “flattered” that Coke actually listened to them.

Who knows, Vodafone might experience the same thing here! It just goes to show, building a differentiated brand both lets the company extract rents and allows customers the “value” associated with having a role in the brand. Sounds good to me!

Matt Nolan

December labour market data: Yuck!

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Yuck yuck yuck.

Given the lack of seasonal adjustment in this series the numbers don’t look as bad as they are – December is normally a very strong quarter for employment after all.

A unemployment rate over 5% in December is a possibility – if these numbers actually line up with the household labour force survey 😛 .  Businesses now believe that the recession will keep going – and they have to lay people off to keep going 🙁 (given that wage costs are “sticky”).

How do you feel about the tanking labour market?  What do you think this should mean about changes to the minimum wage? (ht guy that called me today about the minimum wage review)