Statistics NZ reports 1.2% jobs growth in March quarter; private sector LCI wage growth 1.8% for year; both jobs and wages growth above most forecasts; Jobless rate up to 5.7% as participation rate rises

By Bernard Hickey

New Zealand’s labour market was stronger than expected in the March quarter, driving higher-than-forecast jobs growth and wage growth.

The data released by Statistics New Zealand may make it a touch harder for the Reserve Bank to cut the Official Cash Rate on June 9, as most economists and the financial markets had expected before the data. The New Zealand dollar rose 20 basis points to 69.3 USc immediately after the data.

Economists said the stronger than expected jobs growth was unlikely to tip the balance against a rate cut on June 9, given the mixed signs coming from wages growth.

"The RBNZ is unlikely to be spurred into action by this result," said ASB's Nick Tuffley, who stuck with his forecast for two more rate cuts to 1.75% later this year.

"It is likely to take comfort in the wage growth figures and the strong rebound in employment growth. However, if the participation rate remains high (as we expect), we are likely to see ongoing muted wage growth adding to the already benign inflation outlook," Tuffley said.

Statistics New Zealand reported that employment grew 28,000 or 1.2% in the March quarter from the December quarter, which was stronger than the economists' forecasts for growth of around 0.6/0.7% and stronger than the Reserve Bank’s forecast for 0.5% growth.

279,300 jobless in March quarter

However, the jobs growth, which was the strongest since September 2013, was not enough to offset a 38,000 increase in the work force as the labour force participation rate rose 0.5% to 69.0% and the working age population rose. The participation rate rise reversed a fall in the previous quarter and was larger than economists had forecast.

This meant the unemployment rate rose as expected to 5.7% from a revised 5.4% in the December quarter (previously 5.3%). Part of the growth in the labour force was fuelled by a 29,000 increase in the working age population over the last year, driven partly by migration. The number of working age people choosing not to be in the labour force fell by 9,000 as more people started or resumed looking for work.

The number of unemployed people, which measures the number who say they are looking for work and cannot find it, rose 10,000 to 144,000. Statistics NZ's measure of those who are jobless (table 8), which includes those without a job and wanting a job (but not necessarily available for work) rose by 19,900 in the quarter to 279,300, which was up from 267,700 a year ago. There were also 101,000 people who said they were under-employed, up from 92,800 in the December quarter, but down from 103,600 a year ago.

Almost half of the 47,000 increase in employment over the last year was in Auckland, with construction and professional employment growing by 17,500. The unemployment rate in the Bay of Plenty, which has benefited from the ‘halo’ effect from Auckland’s latest property surge, fell to 5.1% from 7.8% a year ago.

Wages stronger than forecast

The figures showed slightly stronger than expected wage inflation, albeit at still-subdued levels.

The Labour Cost Index (LCI) measure of private sector wage inflation, which is most closely watched by economists and the Reserve Bank, rose 0.4% in the March quarter, which was in line with the 0.4% in the previous quarter. However, it was above the Reserve Bank and economists' consensus forecast for 0.3% and lifted the annual private sector wage inflation rate to 1.8% in the March quarter from 1.6% in the December quarter.

However, the annual wage inflation rate for the LCI including overtime of 1.8% was in line with the Reserve Bank forecasts.

The alternative Quarterly Employment Survey’s measure of average ordinary time weekly earnings per full time equivalent employee, which is used to set pension rates and is used in political debate, increased 2.3% from a year ago, which was weaker than the 3.1% seen in the December quarter.

Of the 57% of workers who received a pay increase over the last year, their mean increase of 2.9% was the lowest since the year to the June 1994 quarter. The median increase was 2.2%, the lowest since the June 2000 year.

Economist reaction

ANZ Senior Economist Philip Borkin said hints of a turn in the wage cycle were perhaps evident in the figures, pointing to the 0.4% private LCI wage growth for the quarter.

"Yes it is still low, which is a consequence of the low inflation backdrop more generally, but it was not as benign as could have been the case," Borkin said.

"Moreover, the distribution of wage increases highlights a small increase in the proportion of workers receiving wage increases, and the LCI analytical measure rose to 3.1% y/y – the strongest since Q2 2014. Construction sector wage growth (outside of Canterbury) is running at the fastest pace since at least 2010, when the series began," he said.

"Today’s figures certainly do not rule out further monetary policy easing. The data was strong in Q4 and the RBNZ still cut in March. Dairy, NZD, and global wobbles all make an argument for cutting. However, reducing labour market spare capacity, in combination with housing and re-leveraging behaviour, mean further easing is far from a done deal in our view – particularly as soon as June."

ASB Chief Economist Nick Tuffley said the data appeared strong, but "suggest that spare capacity in the labour market is not yet a thing of the past."

"Wage growth remains muted and average weekly earnings in the Quarterly Economic Survey fell," Tuffley said.

"Combined with the pick-up in the participation rate, the various reports suggest that subdued wage pressures are likely to remain," he said.

"While the RBNZ may take some comfort from wage pressures being in line with its forecast, the data show that the labour market is not as tight as it thought. We still expect the RBNZ to cut the OCR 50bp this year from June."

Westpac Senior Economist Anne Boniface said the unemployment rate was higher than expected, but the underlying detail was strong.

"There appears to be little to worry the RBNZ on the inflation front in today’s data and, at the margin, they may feel slightly more comfortable about their inflation outlook," Boniface said.

"Strong jobs growth points to solid activity in the NZ economy in the first three months of the year. This probably reinforces their more enthusiastic view on the New Zealand economy they conveyed in the April OCR review," she said.

"However, as the lift in participation shows, the economy is having little trouble adding people to the labour force, meaning wage growth remains subdued."

Political reaction

Employment Minister Steven Joyce said the 51,000 new jobs created over the last six months underlined a strong economic bounce-back.

"Real wage growth remained strong, with average weekly wages up by 2.3 per cent over the past year, considerably higher than inflation of 0.4 per cent. Low inflation means that wage growth is directly benefiting hardworking Kiwis and their families." Joyce said.

"New Zealand is continuing to experience solid growth, more employment and higher wages, along with low inflation. Despite some global economic headwinds, New Zealand businesses are performing well and adding jobs for Kiwis. The Government will continue to implement its Business Growth Agenda to encourage businesses to have the confidence to invest, grow and employ more New Zealanders," he said.

Labour Finance spokesperson Grant Robertson said the May 26 Budget needed to contain concrete plans for jobs growth.

“After eight years under National it is extraordinary that 144,000 New Zealanders are unemployed – almost 40,000 more than when they came to power. The Government has run out of excuses. It should be delivering by now," Robertson said.

“Today’s figures show unemployment rates growing in all but two regions of New Zealand. In Northland and Gisborne the unemployment rate is back over 8%. The Budget needs to deliver a boost to the regions through investment in infrastructure and support the growth of high value jobs," he said.

The Council of Trade Unions called on the Government and non-profit sectors to improve their job creation efforts, to use government procurement to generate local jobs and to control migration.

"People who work for a living ought to make a good living and have a good life.  We call on National to lift its game on jobs and incomes," CTU Secretary Sam Huggard said.

(Updated with market reaction, political reaction, charts)