Unemployment and the Business Cycle

There's been a lot of recent discussion about Statistics New Zealand's latest Household Labour Force Statistics (HLFS) which are used to define 'the' unemployment rate.  Quite correctly, there has been an outcry over how the unemployment rate is the highest its been in 13 years, mainly from a decrease in the number of people who are no longer in employment.

Over the business cycle, profitability and employment are counter-cyclical.  Business profits are the first variable to decline in a recession, followed next by business investment.  Employment growth declines next, and then unemployment increases.  As unemployment increases, business profitability improves and you get the funny situation New Zealand is currently in where unemployment is increasing despite business profits being high.  Growth in business profits lead to growth in business invesment.  Growth in business investment leads to increases in labour employment and decreases in unemployment.

And so "is" the economic business cycle.

So where's New Zealand in this profit-employment loop-de-loop?  We're almost at the turn around stage where business profits have recovered and are growing, but before the business investment stage, where profits are used to expand productive capital and employment.  Expect Statistics New Zealand's Gross Fixed Capital Investment statistics rate of growth to increase either this or next quarter.

The HLFS stats themselves were also interesting, not only for the significant 13 year peek in unemployment, but for how employment has decreased for some age groups,but increased for others.  Here's the latest HLFS graphically.  Older workers are doing ok - its the young and the middle aged workforces that have bourne the brunt of the recession.

And they've been wearing it for quite a few years...!