Westpac and ANZ economists are expecting the unemployment rate to climb from 4% to 4.2%, while ASB and BNZ think it’ll climb a smidge higher to 4.3%.
The latest labour market data, for the March quarter, will be released by Statistic New Zealand on Wednesday, May 1.
The Reserve Bank (RBNZ), still battling inflation above its 1% to 3% target, is expecting an unemployment rate of 4.2%.
In the December 2023 quarter, the country’s unemployment rate increased from 3.9% to 4%, lower than economists’ expectations given several had anticipated a rate around 4.3%.
Back in December 2021, unemployment fell to 3.2% and increased by only 0.2% over the subsequent year. However, upward pressure started in early 2023 due to significant net migration and rising interest rates.
The underutilisation rate, which provides a broader perspective on available labour capacity, increased from 10.4% to 10.7% in the December 2023 quarter. The underutilisation rate stood at 9.3% during the same quarter in 2022.
Westpac senior economist Michael Gordon said Westpac’s unemployment forecast of 4.2% for the March quarter was “still a low level compared to history but it’s a substantial lift from the record low of 3.2% that was set two years ago”.
“The upshot is that we’re not expecting next week’s report to offer much to shift the RBNZ’s thinking. While supporting employment is no longer directly part of the RBNZ’s mandate, the labour market remains a valuable gauge of the strength of the New Zealand economy, and the extent of home-grown inflation pressures,” Gordon said.
ASB senior economist Mark Smith said Wednesday’s data figures had the potential to be “noisy and prone to historical revision” but the bank was expecting the numbers to show an easing in labour conditions.
“In spite of the sharp drop off in job advertising and gloomy headlines, we expect overall employment to increase over the first quarter, but this is more reflective of the lags in the system than a resurgence in labour demand,” he wrote.
ASB expects labour demand to stay low in 2024, with the unemployment rate likely to exceed 5% by year-end.
Smith said annual labour cost growth should cool over the rest of the year due to heightened job competition, modest increases in the minimum wage, and reduced compensation for easing inflation.
“However, services and core CPI [consumers price index] inflation remains too high for the RBNZ’s comfort, with concern over persistently-high wage inflation rates that are not productivity driven. Further cooling in labour cost growth is the pre-requisite to annual core inflation moving below 3% on a sustained basis,” he said.
ANZ economists Miles Workman and Henry Russell are expecting the labour market data to shift “further into disinflationary territory” but they noted that despite the economic weakness in the past year, employment growth has outlasted expectations.
“While that reflects the continuation of the catch-up in employment levels following the period of intense labour shortages, forward-looking indicators of labour demand suggest the expansion in employment is near its end,” they said.
BNZ senior economist Doug Steel said that the retail bank was anticipating the data would confirm a “softening” in the labour market – though not significantly different from the RBNZ’s expectations.
“There will be interest to see what influence the government’s public sector staff reduction programme has had on first quarter employment figures, though it may be a little early for it to show up,” he said.
In the December 2023 quarter, the overall employment rate stood at 69%.
It experienced a yearly increase of 2.4% and a quarterly rise of 0.4%, but it still lagged behind its peak of 69.8% recorded in June 2023.
Westpac has forecast a 0.4% uptick in the March 2024 employment rate while Both BNZ and ANZ think the employment rate will grow 0.3%. ASB expects just a 0.1% increase.
Wage growth?
Stats NZ reported in February, when the December quarter labour market data was published, that the labour cost index – which measures the cost of the same standard job to employers – increased 4.3% during 2023.
Westpac expects the pace of wage growth to ease, even more so compared to the December quarter which had been boosted by a public sector pay agreement.
Gordon said the new Government’s announcement of a 2% minimum wage hike would ease wage pressure in migrant-heavy sectors.
“The current cost-cutting in the public sector suggests that they won’t be bidding up to attract or retain workers,” he said but pointed to teachers’ and nurses’ wage agreements being multi-year meaning further increases would be seen over the June and December quarters.
The tourism sector's rehiring phase was also complete, with visitor numbers around 80% of pre-Covid levels, meaning limited growth prospects.
“Together, this suggests that we should see a more meaningful moderation in wage growth over the year ahead,” he said.
ANZ’s Russell and Workman also expect wage growth to have continued to ease – albeit gradually – in the March quarter.
They said private sector labour costs, including overtime, are expected to rise by 3.8% compared to 3.9% in the December quarter while average hourly earnings in the private sector are predicted to decrease by 0.7% to 5.9% year-on-year.
“The RBNZ will certainly be looking for a moderation in wage growth, though the lagged response of wages means the first quarter data will tell them where the labour market has been, rather than where it’s heading,” Workman and Russell said.
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