The number of people enrolled in the Job Seeker Workforce Readiness Program increased by 13,668 in May from a year ago. File photo.
photograph: 123RF
Enrolment in the JobSeeker Employment Preparedness Benefit has increased by nearly 4,500 since early May, and more dire data on the situation of domestic businesses could be a harbinger of further job losses.
Statistics New Zealand released data last week showing that non-financial businesses spent more than they earned in the March quarter, a continuation of a trend seen in four of the past five quarters.
The calculation includes non-cash factors such as depreciation, but paints a similar picture to other data released in recent months showing sharp declines in gross domestic product per capita and corporate profits.
Miles Workman, a senior economist at Australia and New Zealand Banking Group, said the economic upturn could mean businesses are borrowing to invest in new plant and machinery.
“That's not what's happening right now. What's happening right now is consistent with where we think the business cycle is. Businesses are still facing higher production costs for goods and services, higher labor costs, higher interest rates, higher transportation and fuel costs. Some businesses are still rising at a relatively healthy pace.”
“Meanwhile, consumers are tightening their purse strings, saving money and becoming more selective about how much they spend and where. Businesses are bearing these costs and profitability is taking a hit in that world.”
He said businesses would eventually have to rebalance their spending on labour and other areas and said this was just another example of a central bank-engineered recession.
Data from the Ministry of Social Development showed that the number of people receiving the Jobseeker's Employment Preparation Allowance rose by 13,668 in May compared to a year earlier, a 14 percent increase. An additional 2,052 people started receiving the allowance in May alone.
Since then, an additional 2,450 people have applied for the benefits through June, according to weekly reported data.
“It's difficult to improve productivity”
Mark Smith, a senior economist at the ASB, said this showed how much the non-financial corporate sector was losing out.
“This is important because these companies tend to employ people, and in the midst of a policy-induced recession, it's hard to increase productivity if they're running at a loss or can't see room to increase sales or prices. Increasing productivity is key, but their track record so far has been poor. Looking to cut costs is the last resort they can afford.”
He pointed to a recent quarterly business survey that showed companies were under significant pressure on profit margins and were considering cutting jobs. Treasury data also showed that corporate tax revenues were still well below last year's.
“That will trickle down and hit the household sector.”
He said weak corporate earnings were the reason the ASB had brought forward its forecast for the first official ash content ratio (OCR) cut to the end of this year instead of February next year.
“The other thing is the impact on wages… the corporate sector is much weaker and we're not going to see the same wage growth that we've seen in the past.”
He said that while public sector cuts had attracted a lot of attention, they were “tiny” compared with what was happening across the corporate sector.
Westpac chief economist Kelly Eckhold said the central bank appeared surprised that households and businesses did not adapt more quickly to a tighter monetary environment during the last monetary policy review.
“People have been expecting a rate cut to be coming for some time now, so they thought maybe they would just hold on and not weed out people who aren't currently relevant.”
He said the labour market had proven more resilient than the central bank had expected, but that would need to change if business activity did not recover.
