Well, they will be 'noisy', as the economists like to put it.
That's labour market figures I am talking about. The Covid disruptions since August will have an impact on how this week's (Wednesday, November 3) labour market figures for the September quarter to be released by Statistics New Zealand will look.
The lockdown has, of course, disrupted how Stats NZ is able to collect its data. So, there will be 'noise'.
In general terms though, the figures are expected to reflect the very heated conditions in the labour market prior to the outbreak of Delta.
Unemployment, which surprised very strongly, by plummeting to just 4% as of the end of June, is expected to fall again. The Reserve Bank in its August Monetary Policy Statement picked 3.9%. Some economists think it will be a little lower, at 3.8%.
Wages are likely to be of greater interest. With the pricing pressures that are being seen, combined with an increasingly constrained supply of labour, there's plenty of anecdotal evidence of higher wages being demanded.
The RBNZ predicted that private sector wages would lift 0.6% to 2.4%.
Economists are expecting the figures to be somewhat higher than that. And any sign that wage pressures are really starting to take off will put further pressure on the RBNZ to keep hiking interest rates.
The RBNZ increased the Official Cash Rate from 0.25% to 0.5% in its review last month and is largely expected to increase the rate again to 0.75% on November 24.
Banks are already front-running official interest rate rises with mortgage hikes as they face extremely volatile (and upward) pressures in the wholesale interest rate markets.
ANZ economist Finn Robinson and chief economist Sharon Zollner say it’s quite easy to envisage a scenario where the labour market data are so strong that the urgency for monetary policy tightening "is ratcheted up yet another notch".
"For example, we could see the unemployment rate drop into the low 3s, even with rising participation over the quarter. If the details are that strong (ie the super-low unemployment isn’t due to falling participation, which would be a weak or just noisy signal), the risks of a wage-price spiral would be front and centre for the RBNZ.
"In that instance, market odds on a 50bp hike in November (currently 25%) would likely rise. While we wouldn’t rule it out, at a time of such extreme Covid-related near-term uncertainty that would be very bold, and not consistent with the kōtuku speech about treading cautiously at such times."
The ANZ economists suggest there would be "gentler ways" of delivering more monetary policy tightening that preserve more optionality should downside risks materialise.
"One of these options could be simply forecasting a higher terminal OCR in the November MPS. That would be credible, and cause swap rates to rise further, taking mortgage rates with them.
"Alternatively, or in addition, the RBNZ could consider adding in a Monetary Policy Review in January, filling in what’s always been an odd gap in the monetary policy calendar.
"One of the strongest arguments for a 50bp hike is that it’s a very long time until the February Monetary Policy Statement. So why not just fix that? It is not unheard of for the RBNZ to adjust its meeting dates – last year the RBNZ MPC met for at least two unscheduled meetings, and the March meeting was cancelled. Of course, we’re not in the thick of a crisis, but things are very uncertain, and by January, we’ll have a better steer on how reopening from Covid was going. It seems like a win-win to us."
Robinson and Zollner say "to be clear", their central view is that the labour market data will NOT force the RBNZ’s hand to hike 50bps or consider the alternative strategies mentioned above.
"A noisy outturn that raises as many questions as it answers seems most likely. But given how much uncertainty there is right now, we can’t rule out a very strong release, and it is worth highlighting the potential paths the RBNZ could take in that instance."
The ANZ economists' official pick is that the unemployment rate fell to 3.8% in Q3 (4.0% previous) due to strong employment in the first part of the quarter.
"Lockdowns will add noise, but looking ahead to 2022, we expect the unemployment rate to continue falling, bottoming out at 3.5%."
Wage inflation is likely to "come in strong".
"We think private sector labour costs were up 2.7% y/y, and that hourly earnings rose 4.3% y/y in Q3. Those increases aren’t keeping up with inflation – we expect wage inflation will increase significantly over the next year, reflecting the cost of living and further labour market tightening."
Westpac acting chief economist Michael Gordon also expects the unemployment rate to fell to 3.8% for the September quarter.
He's picking 1% private sector wage growth in the quarter, for an annual rate of 2.8%.
"There is substantial evidence that the demand for workers is running hot, relative to supply. As a result, we expect to see a further acceleration in wage growth.
"The tight labour market presents a major challenge for the Reserve Bank. In these conditions, even a temporary inflation shock can provide the spark for an ongoing series of wage and price increases," Gordon says.
He says, "crucially" both the unemployment and wage figures are expected to be stronger than the RBNZ assumed in its most recent forecasts in August.
"If we’re right, that would further bolster the case for a series of OCR hikes over the coming months.
"On that point, we should address the fact that interest rate markets have been on an absolute tear in recent days – market pricing is now consistent with an OCR reaching almost 3% in the next two years.
"It’s likely that some of this reflects runaway momentum in a thin market, rather than a strongly-held view on the cash rate. So while we wouldn’t rule out such an outcome, we’d note that there’s already a lot of inflation ‘fear’ baked into the longer-term interest rates that borrowers face."
ASB senior economist Jane Turner says the September quarter labour market figures will be mixed, but for the most part the outcomes will reflect how well the labour market was doing ahead of the community outbreak of Covid-19 in August.
She's picking an unemployment rate of 3.9%, with private sector wage growth of 0.8% in the quarter and 2.8% for the year.
"Ahead of the first [Covid] case being discovered, the NZ economy was exceptionally strong and the labour market was rapidly overheating. Demand for labour far outstripped supply, with the latter constrained by international border closures. Employment was strong, and the conditions were ripe for strong increases in wages.
"Measurement challenges due to lockdown will impact our ability to interpret the impact of Alert Level 4 restrictions on employment. The HLFS [Household Labour Force] survey saw a fall in its response rate, which impacts its reliability. Meanwhile, the QES [Quarterly Employment Survey] largely covers the period prior to the discovery of Covid-19 in the NZ community.
"Even if the labour market softens over the second half of 2021, it will most likely bring the balance of labour market conditions from ‘extremely tight’, to ‘still somewhat tight’."
Turner expect labour market measures will be largely consistent with being at or close to maximum sustainable employment by early to mid-2022.
"However, the upward pressure on wage inflation will remain and the RBNZ’s inflation mandate will stay under threat, and we expect the RBNZ will continue to lift the Official Cash Rate over the coming year."
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20 Comments
"ANZ economist Finn Robinson and chief economist Sharon Zollner say it’s quite easy to envisage a scenario where the labour market data are so strong that the urgency for monetary policy tightening "is ratcheted up yet another notch"."
Very cool that we throw people on the unemployment heap, with all its social costs, to control inflation.
Minimum Wage in NZ should be $40 per hour.
Even at $40 per hour the average rent would still take up more than 1/3 of income it most cities.
$45 per hour is probably a realistic wage going forward for job hunters. That or importing migrants/neo-slaves to exploit.
"Show me the incentive and I'll show you the outcome".. when housing is pushing the 1 million-dollar-average good luck getting people to work for low wages, aka 'for free'.
Now consider inflation! Money printing and slavery is all Labour have to offer.
NZ Turkeys have be voting for Xmas for decades.
Good Luck.
$200 x 40 hours x 52 weeks = $416,000.. x 3 years = $1,248,000
$1,248,000 is about the average cost of a house in Auckland. $200 per hour based on a 40-hour-work-week would bring housing to 1980's affordability?
I wasn't alive in 1980 but I'm told anecdotally houses were approximately 3 times [gross?] income. So "$200/hr" is probably reasonable for Auckland.
so yeah.. good luck finding/retaining staff at current wage levels LMFAO
The irony is. That, that is The Plan!
The trouble with it is, as you suggest, CPI + Home Purchase Costs + other Real Costs conveniently not put in the CPI = More and More Debt is needed to replace lost Real Income Purchasing Power.
It's all pointless IF New Debt keep increasing at pace, to replace actual work effort.
We end up not where we started, but even further back.
And some very clever people think they know what they are doing and that it will work.
(NB: IT stood a chance of 'working' IF Total Debt was kept constant as Wages lifted - real jobs were created to fill the void of Import Replacement. But as we can see, the risk is that the assets underpinned Current Debt fall in value, and then what? That's right! Economic and social calamity, which is coming anyway. There is no way out of where we are now. It's just a matter of When and How Bad it's going to be)
The OCR must be raised to 3%, by end of the next year at the latest. The sooner the better. All economic indicators point to the absolute and urgent necessity to boldly raise the OCR now.
Being too gradual might prove a big mistake - the RBNZ must choose the path of least regret and look with sharp eyes at what is happening in the economy, and raise rates now and significantly. A raise this month by 50bps would only be the bare minimum.
If wage inflation is seen to be a problem, then remove it from the CPI. Houses have been inflating at around 25-30% for over a year now, and the calls by bank economists to make some sort of emergency rate rise because of it have been deathly quiet. It seems things are only a problem if you measure them.
OCR should go up by at least 1% in next meeting, if they were truly interested getting close to their inflation target, which is their main one.
If they don't do that, then they are letting inflation run, in the hope that it lowers the debt bubble. When it will simply make it bigger.
Like many of us have said multiple times, the RBNZ has firmly painted themselves into a corner and now have no good options. It didn't have to be this way, if they acted sensibly for the past few years. Instead they have acted irrationally, particularly if it looked like some sort of housing downturn. Now we get to reap what they have sown. I still expect Orr's resignation sometime in the next year or so "for personal reasons" (which may mean that he is experiencing severe loss of confidence in neo-liberal economics and has come to the realisation that many of us have already had, it's total bulls$#t).
Hold on a second, do we really think this is a demand driven inflation problem, with the lockdowns we have been having etc this is imported inflation, so raising rates may improve the dollar to stem this a little but at what cost to the economy? I understand people want rates higher to dampen the housing market, but the housing market inflation is not even included in the figures. So they are two related but different problems. I think people need to see raising wages to cope with the cost of living, killing more businesses and sucking what little growth we have out will not fix imported inflation.
So a wage growth of 2.8% against a CPI of 4.8% sees the average wage earner continuing to fall behind, so this is nothing to celebrate. If wage growth was 4.9% then that would be reason for optimism. Wages need to grow even further to give the average Kiwi a chance to catch up. I'm not sure continuing to hike interest rates will really help, it would just force businesses to pull back on their investment and growth and slow wage growth even further.
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