The New Zealand labour market remains extremely tight. While the unemployment rate rose slightly to 3.3%, the other details point to major capacity constraints and intensifying pressure on wages.
Key results
- Unemployment: 3.3% (Prev: 3.2%, exp: 3.1%)
- Employment: Flat (Prev: +0.1%, Exp: +0.4%)
- Wages (LCI, private, ordinary time): +1.3% (Prev: 0.7%, Exp: 1.1%)
Commentary
The New Zealand labour market remained extremely tight in the June quarter. While the unemployment rate bucked expectations with a slight increase, the other details point to an economy that is running up hard against capacity constraints, and the pressure on wage growth is intense.
The unemployment rate rose slightly to 3.3% in June, against our forecast of a slight decline to 3.1%. That still leaves it at a very low level – the previous reading of 3.2% was the lowest in the history of the survey going back to 1986.
The other notable surprise for us was a second quarter of zero employment growth, coupled with a surprising drop in the participation rate. There has been solid growth in youth employment and participation, as we expected, but that appears to have been outweighed by a sharp rise in the number of people moving into retirement during the quarter.
In contrast, the underutilisation rate dipped slightly for the quarter to 9.2%. That was accompanied by a large shift from part-time to full-time employment. That may have been due to people working closer to their ‘normal’ hours, with less Omicron-related disruption compared to the previous quarter. But it’s also part of a long-running trend, with part-time work increasingly falling out of favour.
With such a tight labour market, wage growth is clearly gathering a head of steam. The Labour Cost Index rose 1.1% overall, with a 1.3% rise in the private sector. That was substantially above our forecast (given that it’s a relatively slow-moving measure), though it was close to the Reserve Bank’s most recent forecasts. The share of jobs receiving large pay rises continues to increase, and notably the most common reason cited is to match market rates and/or retain staff, rather than cost of living increases.
Average hourly earnings, a closer measure of what workers are actually receiving, rose 2.2% for the quarter, which was also much stronger than we expected. This measure is up 6.4% on a year ago, while consumer prices rose 7.3% over the same time. That still indicates that real wages have gone backwards in the last year, but not as badly as thought.
For the Reserve Bank, the strong wage inflation outcomes will likely be the most significant part of today’s reports. The risk for the RBNZ is that wage pressures provide an avenue for the recent bout of price shocks to turn into sustained inflation over time. We’ll review our OCR forecasts later today, but the risks are clearly towards a higher peak than the 3.50% that we have been forecasting for some time.
