The New Zealand labour market is softening, but government pay agreements have continued to hold up overall wage growth.
- Unemployment rate: 4.3% (prev: 4.0%, Westpac f/c: 4.2%, RBNZ f/c 4.2%)
- Employment change (quarterly): -0.2% (prev: +0.4%, Westpac f/c: +0.4%, RBNZ f/c +0.1%)
- Labour costs (private sector, quarterly): +0.8% (prev: +1.0%, Westpac f/c: +0.7%, RBNZ f/c +0.8%)
- Average hourly earnings (private sector, ordinary time quarterly): +0.3% (prev: +0.5%)
The March quarter labour market surveys were something of a mixed bag, not easily lending themselves to a single interpretation. The bottom line remains that the jobs market continues to soften as the economy cools, but it’s less clear whether wage pressures are easing to the degree that the Reserve Bank would like to see.
The unemployment rate rose from 4.0% to 4.3% in the March quarter. That was close to what we expected, although the composition was different. The number of people employed fell by 0.2%, against our forecast of a 0.4% rise. But this was accompanied by a fall in the labour force participation rate from 71.9% to 71.5%, the lowest in almost two years.
This result contrasts with the already-released Monthly Employment Indicator (MEI), which showed steady growth in jobs over the quarter. It also differs from the Quarterly Employment Survey (QES), which showed a 0.7% rise in filled jobs and a 0.6% rise in full-time equivalent employees. Overall, we’re more inclined to believe the MEI result – since it’s drawn from tax data, it is close to a complete record, as opposed to the relatively small sample sizes used in today’s surveys. Even so, the message from the MEI has been that jobs are no longer rising fast enough to match population growth.
Returning to the HLFS, despite the fall in employment, the number of hours worked rose by 0.4% for the quarter, and was up 2.2% on a year ago. (The QES showed an even stronger increase in hours paid.) At a time when GDP growth has been much weaker than that, this points to an ongoing poor performance in New Zealand’s labour productivity.
The Labour Cost Index (LCI) rose by 0.8% for the private sector and 0.9% for all sectors, slightly more than what we had estimated. Government pay agreements continue to filter through into these measures (and this is also captured in the private sector measure, since large parts of the health and education sectors are privately-run but publicly-funded).
Notably, the unadjusted analytical LCI was much softer than in previous quarters, rising by 0.9% for the private sector (the annual rate slowed from 5.7% to 5.2%). 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. Similarly, the QES average hourly earnings measure, which does not account for changes in the composition jobs, rose by just 0.3% for the quarter.
To the extent that the legacy of government pay agreements is continuing to boost the overall figures, we can reasonably expect a more meaningful slowdown in wage growth over the course of this year. What remains to be seen is whether this will go far enough to be consistent with the 2% inflation rate that the Reserve Bank is ultimately aiming for.
Bottom line implications for the RBNZ
Overall, we suspect this doesn’t change the picture that much for the RBNZ. There will be relief that the broad path for the labour market seems intact, which will be required to reduce the ongoing domestic inflation pressures that remained clearly evident in the March quarter CPI report.
