The New Zealand labour market is softening, but wage growth remains on the high side, partly supported by government pay agreements.
- Unemployment rate: 4.6% (prev: 4.4%, Westpac f/c: 4.7%, RBNZ f/c 4.6%)
- Employment change (quarterly): +0.4% (prev: -0.3%, Westpac f/c: -0.4%, RBNZ f/c +0.1%)
- Labour costs (private sector, quarterly): +0.9% (prev: +0.8%, Westpac f/c: +0.7%, RBNZ f/c +0.9%)
- Average hourly earnings (private sector, ordinary time quarterly): +1.4% (prev: +0.2%)
New Zealand’s labour market has continued to soften in broadly the manner that the Reserve Bank was expecting. Unemployment is steadily ticking higher, despite some volatility in the underlying figures. Less helpful for the RBNZ is that wage inflation remains uncomfortably high on the face of it, though this is more concentrated in sectors where government pay agreements are still taking effect.
The unemployment rate rose to 4.6% for the June quarter, slightly less than market predictions, but in line with the Reserve Bank’s most recent forecast. The March quarter was revised up slightly from 4.3% to 4.4% (as we noted in our preview, it was already extremely close to 4.4% before rounding). The unemployment rate is now at its highest level since March 2021.
As often happens with the Household Labour Force Survey (HLFS), there were some offsetting surprises in the details that don’t change our overall view. The number of people employed rose by 0.4% for the quarter, well above our estimate of a 0.4% decline. This was accompanied by a pickup in the labour force participation rate from 71.6% to 71.7%, the first increase in a year.
Our forecast was based on the Monthly Employment Indicator (MEI), which saw a steady decline in the number of filled jobs over the quarter. As we noted in our preview, the MEI is a comprehensive record drawn from income tax data, so to the extent that there is a divergence between this and the HLFS, it’s most likely to be due to sampling error in the latter. Indeed, the two had diverged in the opposite direction in the previous quarter, with the MEI recording a rise in jobs against a 0.3% decline in the HLFS. There was always a risk that we could see some payback in the June quarter, though it wasn’t our forecast (it hasn’t reliably behaved this way in the past).
We’re more inclined to believe the weak MEI jobs numbers, given that they are supported by other evidence. The Quarterly Employment Survey (QES) recorded a 0.5% fall in filled jobs and a 0.9% fall in hours paid, following gains in the previous quarter. And the HLFS itself recorded a whopping 1.2% fall in hours worked – consistent with our recent forecast that June quarter GDP will be particularly weak.
The Labour Cost Index (LCI) rose by 1.1% for all sectors in the June quarter, which actually lifted the annual growth rate up again from 4.1% to 4.2%. That included a whopping 1.9% rise in the public sector for the quarter; the private sector measure rose by 0.9%, albeit still above our forecast of 0.7%.
The wage figures were affected by pay increases in the health and education sectors, which had been previously agreed and were implemented in stages. We noted these in our preview, but we didn’t have a strong sense of how large an impact they would have – and it has clearly been on the higher side. These pay agreements boosted the public sector measure in particular, but also lifted the private sector measure to some degree (there are many providers that are privately owned but publicly funded). As a rough and ready guide, we estimate that labour costs excluding health and education rose by 3.5%yr, similar to the previous quarter.
The unadjusted analytical LCI rose by 1.2% for the private sector, with the annual growth rate slowing from 5.2% to 4.8%. This measure does not adjust for pay increases related to productivity improvements, and is perhaps a better gauge of what workers are actually receiving in hand. Overall it appears that wage inflation is slowing, but it remains above what would be consistent with the RBNZ’s 2% target midpoint.
Overall, there were no real surprises for the RBNZ in these surveys. That in itself is likely to be a disappointment for financial markets, which we suspect were looking for a result that would validate their pricing for an OCR cut at next week’s Monetary Policy Statement.
