Unemployment has unexpectedly risen - albeit only by a fraction to 3.3% from 3.2%, according to Statistics New Zealand.
Wages have risen by more than expected, with private sector hourly earnings up by some 7%, which is close to matching the current 7.3% annual inflation rate.
Statistics New Zealand said that the unemployment rate as at the end of the June quarter was 3.3%.
Economists had expected a continued fall in the rate, with predictions it may get down to 3% or even lower.
While the rise in unemployment might actually provide the Reserve Bank (RBNZ) with some sense of relief, the increase in wages will not. It had been forecasting an increase in private sector hourly wages of just 5.6%.
Westpac acting chief economist Michael Gordon said for the RBNZ, the "strong wage inflation outcomes" will likely be the most significant part of Wednesday'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," Gordon said.
ANZ economist Finn Robinson and chief economist Sharon Zollner said the wage figures were "the real news" in the labour market data.
"Wage growth is rising even faster than anticipated, raising the risk of a wage-price spiral as high inflation gets embedded in wage-setting behaviour," they said.
"Unfortunately for the RBNZ, this further acceleration in wage growth only makes the inflation fight harder. Yes, the headline unemployment number came in a fair clip above our expectations [they expected 2.8%] – but that just shows that firms were not able to find as many suitable workers as we estimated they would have, not that they weren’t looking. The extreme tightness in the labour market has just shown up in another form.
"Probably the most sobering aspect of this jobs report is the fact that we’ve seen something of a plateau in the unemployment rate in recent quarters, while wage growth has continued to accelerate. That suggests the RBNZ may need to hit the labour market quite hard to bring inflation pressures back down – and that likely means higher unemployment than we previously expected to see."
Stats NZ has a number of measures for wage rises. It said wage inflation, measured by the labour cost index (LCI), was 3.4% in the year ended June 2022, while average ordinary time hourly earnings rose 6.4%.
As stated above, private sector hourly earnings rose 7.0%.
"The June quarter had the largest increase in LCI salary and wages rates since late-2008," Stats NZ's business employments insights manager Sue Chapman said.
"Over the year, a steadily increasing number of wages have been raised to better match market rates, as well as attracting or retaining staff.
"Nearly two-thirds of roles surveyed in the LCI saw an increase in ordinary-time wage rates in the year ended June 2022 – the highest level since this series began in 1993."
In terms of the detail in the unemployment figures, the seasonally adjusted underutilisation rate was relatively unchanged at 9.2% this quarter, compared with 9.3% last quarter.
The seasonally adjusted labour force participation rate was 70.8%, compared with 70.9% last quarter.
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108 Comments
Also Jacinda's refusal to open visa applications to foreign workers until just a month ago has curtailed the much sought-after wage suppression.
However, worth noting is the $27/hour wage threshold on hiring foreign workers ($25 for hospo). Looks like importing workers may not be the silver bullet employers are seeking to bring wage costs under control at the lower end of the job market.
The hourly rate threshold of $27 is pegged to the median wage, so what you have pointed out is a much bigger problem.
Back in 2013, median wage was 61% higher than minimum but is down to just a 27% premium in 2022.
There's also the fact that the government wants more high-skilled migrants, which it now simply defines as those earning a cent above our median wage, despite the shrinking premium it has over the minimum wage.
We possibly shouldnt even be importing workers at that wage level.
I very much doubt the value to the economy/tax they pay even starts to make up for the increased infrastructure (roads, water, energy, emmissions, superannuation etc) and healthcare and policing costs we incur per person for those workers.
We should be working out what the infrastructure/lifetime cost is per additional person and then ensuring the hourly wage and associated annual tax is enough to pay the government over their lifetime. One could choose to factor in their ability to pay for accomodation and the availability of said accomodation and perhaps the need to factor in somehow the cost of the additional housing development we need to house them nd how many such houses we can actually build without making houses appreciate due to shortages etc?
my suspicion is that the employers make a small profit but the country makes a loss. Better is to force the employers to invest in productivity and technology in order to do more with less (last time i checked we are one of the least productive economies in the oecd?)
Should be relatively easy to cost it out.
I believe there are age caps for this reason. The biggest expense of any resident/citizen in NZ is them getting old.
If you were bottom lining it, the most "profitable" worker for existing NZ taxpayers would be an imported, already born, already educated 30-40 year old.
Which is also the demographic lacking across many fields. We failed in our education and apprentice systems from about the 80s, so with our aging population we also have massive gaps in many vocations.
Quick, someone make a plumber robot, they're over $100 an hr now.
By letting inflation run out of control it has kicked off the price & wage inflation spiral that central bankers fear. People now expect price rises so demand wage increases to compensate. Businesses now expect employees to ask for more compensation, so raise prices so they can pay staff.
Slow clap for the RBNZ spending ~9 months calling inflation “transitory” leading us into this mess.
Lots of people will now blame rising rates for “killing jobs and destroying the economy”. The truth is the jobs that disappear were never real to begin with - they were just created through artificial monetary stimulus that was left in place a year past its due date
By letting inflation run out of control it has kicked off the price & wage inflation spiral that central bankers fear............The truth is the jobs that disappear were never real to begin with - they were just created through artificial monetary stimulus that was left in place a year past its due date
Dig your work Migs. I like the idea of employment linked to the 'artificial monetary stimulus', which in actuality is not just a Covid period thing. It's been the main engine driver for a long time. It's all part of the bubble economics paradigm and the wealth effect paradigm (the RBNZ tries to downplay this through their 'research'). The 'artifical monetary stimulus' is really part of the 'credit creation' mechanism which has basically been open bar for a long time.
the extreme examples where reality is about to bite
https://wolfstreet.com/2022/07/27/big-tech-startups-getting-ready-for-r…
Why bother? If pay is keeping up with inflation and our massive debt is deflating, where is the down side? This seems like a fantastic outcome for the indebted middle class and a reasonable one for everyone else except those with assets and savings (the rich). Why cause a recession which is bad for everyone?
I agree, not sure why everyone is so worried about these levels of inflation. We're not looking like going to hyperinflation.
The Economist had a good article on this earlier this year: https://www.economist.com/finance-and-economics/2022/04/23/does-high-in…
Because inflation is a tax, inflation is a tool for stealing off the savers and the wage earners who have been productive to society. Time for a reset. And the reset will be the productive serfs, us productive workers yet again, propping up the FIRE sector. Time for a recession, whoops no depression.
Why bother? Having a wage and price spiral inflation is just not sustainable. Eventually this will push firms to go out of business if it's not controlled. New Zealand would go into depression for many years or even a decade. People will be scared to invest. Lots of people will lose jobs.
This is reason why inflation has to be tamed, we don't have other choices. I agree with Sharon Zollner. Now as we starting to see more signs of wage-price spiral inflation happening, especially under such tight labour market, high inflation expectation environment, it will be even harder for RBNZ to tame the inflation.
I would argue it is being tamed, I doubt we will see 7% in the next CPI, in fact I am picking a quarter near deflation due to oil prices. Do we risk a recession to get it back to 2% ASAP, or let it slowly drop down. Personally I think they should wait for the next CPI before doing anything, this is all historical data people are panicking about.
Oil prices have absolutely nothing to do with inflation. Massive government spending and bankers ability to create cheap speculative money, with low interest rates and no possibility of paying it back (interest was never created). Don't need to wait on a CPI, because I cannot afford the grocery store!~
i am with you Jimbo -- as long as wages are goign up in line with inflation - its not the worst outcome --- Usually there are lags between inflation and wages and inflation and unemployment --
But here -- despite the slight rise -- there are thousands adn thousands of jobs empty -- so even if we lost 20000 jobs due to inflation and businesses not being able to compete -- all of those peopel will still have plenty of alternatives - and of course they are workers so will take other jobs not like the 3% who are virtually unemployable TBH
4000 nurses needed in Auckland alone -- Auckland Airport had a total over 3000 different vacancies at its job fair last weekend -- and nearly every shop or business i pass has staff wanted signs -- hell i need 10+ clinical staff and 25 support workers ( at $28.25 for a L4 staff) there is a lot of slack before unemployment rises significantly and i suspect a lot more wage growth happening --
Only 75bps? The RBNZ inflation target have been missed every quarter since Q2, 2021. In fact inflation has been moving further from the target band every consecutive quarter.
They need to get a grip on inflation with consecutive quarters of decline. This is no time for half measures.
An interesting equation: 9 months working 60hr weeks is actually more time worked than 12 months a year at 40hrs a week.
Actually, if you can stomach a few months at sea, I know people that earn over 200k fishing for Albacore Tuna up the West Coast of Nth and Sth Island in summer. 2 months on, 10 off is a good deal.
For sure, there's sectors now that have so many other requirements outside of the core business, smaller players don't stand a chance. You can justify things like human resources and health and safety managers with 100+ employees, its a lot harder once you get down under a few dozen.
Silly response but hey thats Ok I will take it on board go and tell my staff they are fired and then book a flight to Australia
The problem with inflation is that everyone loses but the burden is never evenly shared
and actually even before the inflation rate increased I already had staff that needed assistance as they couldnt meet ridiculous rent increases - so they got pay rises that were not recovered by price increases
Unfortunately, our tax system says we value land speculators far more than we value entrepreneurs. You have to bear the brunt of things because they are sacred and untaxable and infest our parliament and bureaucracy.
I personally would prefer we incentivise business owners such as yourself, and understand that roughly 75% of corporate income tax is borne by employees anyway in the form of lower wages.
Why is economic data described "unexpected" or "surprising" these days? Is it because fiat economists are incompetent, perhaps? Us lowly interest.co.nz commenters have expected such inflation and employment data for a long time now. It's neither unexpected nor surprising to us.
It's another case of "experts" being proven incorrect and humble plebs with a modicum of a brain using an ounce of logic being correct.
Probably also the sources. What's more reliable, data on consents, or data from timber merchants?
It's like the inflation war at the moment, the logic is hike, hike, hike, but whatever decisions the RBNZ make today may take 6-12 months to make any tangible difference. I guess in the short term it's all about intention and optics.
There might be some seasonal adjustments to be done, but I would be pretty confident of unemployment being static or notching up 10 points to 3.3% [Jfoe 31 July 22].
Worth noting that the increase in unemployment has been obvious to anyone who looks at the actual data for weeks. It's been very frustrating watching reckonomists predicting drops in unemployment to record levels. So, forgive me if I gloat a little.
You can look at the trends through a variety of datasets - filled jobs, salary data, labour force survey, etc. All the data suggests that the trend will continue and unemployment will increase further. It is pretty simple to explain... Disposable income is falling quickly as the price of non-discretionary items increases more quickly than wages (petrol, mortgage payments, rates, insurance, rents) and consumer confidence falls with house prices. Hence, we are seeing jobs dropping away sharply in areas that are vulnerable to lower consumer spending / confidence - construction, retail, hospitality etc. We will get updated electronic card spending data next Monday - if that shows continued declines, then we are going to be in trouble.
Great stuff Jfoe. Everyone shold know that the unemployment rate as a metric is as shallow as the reading list of Cindy Ardern. To understand unemeployment is a much more qualitative exercise.
F'more you mention that disposable income is falling as the price of non-discret items increase relative to income. Yessiree. Now what what do you think happens to the incomes of those in businesses that produce 'nice to have' discretionary goods and services? The pressure on keeping incomes flat will be immense. The problem here is that the NZ economy has plenty of businesses that sell 'nice to haves.' When and if they start to go tits up, you have a whole new deflationary force ripping through the economy exacerbating unemployment.
True. Also, private sector average hourly wages have gone up by 7% but headline LCI is still at 3.4%. The former is an important stat because the RBNZ watches it to determine whether high inflation is causing a wage spiral.
The fact that this is 'hourly' and 'average' and not 'annual' and 'median' means it is not built to measure the strength of household finances.
E.g. The survey will show good results even if businesses decide to increase hourly wages for all staff but cut back their weekly hours to counterbalance the increase. However, the staff will see no wage growth in nominal terms and falling behind in real terms.
Bit off topic.
I am seeing some townhouse developments advertising at prices around 5-10% lower than I would expect. I haven’t been following these over time to see if they have reduced prices.
I am wondering if:
1. Building costs are moderating and/or
2. Developers are accepting the need to lower prices to meet the market, and are accepting they will accrue a smaller profit
Probably more the second factor I suspect.
The much higher increase in wages, whilst good for employees, will give the RBNZ much more purpose in lifting the OCR because on one hand, it has to do so in order to reduce inflation, but also because it will take heart that workers are well equipped to withstand higher interest rates, as their wages are also higher.
I got my $ 116.67 of Parker pesos yesterday ... off to ogle blocks of cheese ...
... wouldn't need a job at all if the government kept helicoptering free money around the globe ...
Keep voting Labour , if you're wanting us to become the Greece of the South Pacific ....
There is plenty of cash being airdropped in Wellington. Most ministries and agencies received big budget boosts and are engaged in bidding war for workers with one another and with the private sector, whatever is left of it in the region.
The big winners in the capital are consulting firms who poach public sector workers with sought-after skills and loan them back to the same agencies for multiples of their pay rate. Jacinda's public sector pay freeze has helped grow this business practice.
High inflation is good in a way, if you have a secure job with inflation matching increases, and a mortgage.
Like in the 80s, if you can survive, the inflation eats into the real cost of the mortgage, so when inflation and interest rates eventually subside, you'll be way better position.
Unfortunately, those with term deposits and other fixed income sources get annihilated.
When I bought my first house I took out a 5 year loan just to protect myself from this exact scenario. Now I’m not blaming those that didn’t as not everyone knows all this stuff when buying their first home and no one was predicting this, but maybe the banks should at least encourage, if not enforce it for highly indebted.
Slightly off topic but just comparing AUS to NZ average wages in mind blowing. $22k increase on teachers..
AUS - https://au.talent.com/salary
NZ - https://nz.talent.com/salary
Excellent news really -- not sure what the fuss is about -- with 50,000 vacancies there is lots of slack still to be taken in the labour market -- so we can easily cope with 10-20000 job losses as all those workers will quickly find other jobs -- and at better pay in most cases
to all those who kept saying they couldnt see wage increase -- this is a huge number and happenign so quickly without the usual 12 month lag -- i woudl suggest there is a lot more actualy happenign in teh last couple of months -- certainly in Health -- 10-15% is available for people moving jobs - - just done a full round of 7=10% rises and fear it wont be enough -- despite our Health NZ funding rise beign only 3% -
there are 4000 nurse vacancies just in Auckland ..... finally hard working professionals getting those big payrises for a change -- and about bloody time
so we can easily cope with 10-20000 job losses as all those workers will quickly find other jobs -- and at better pay in most cases
Sure, we could have out-of-work hotel workers look after ICU patients in our hospitals facing nursing shortages.
The fallacy in your argument is that you assume those 50,000 vacancies are the result of worker shortages. In reality, it takes years of planning and investing on the part of the government and businesses to train up workers in fields where chronic shortages have existed - medical, engineering, construction, tech, etc.
We have worked around these years and investments by using our immigration channels but can't continue forever. (e.g. 40% of our doctors and 25% of nurses trained overseas)
I guess today's lesson is that NAIRU is higher than 3.3%.
Eventually wages have to regain ground against inflation whether inflation is 1% or 7%, right? If real (i.e. inflation adjusted) wages had kept falling the cost of living crisis would become a consumer recession and probably a credit crisis (given many are up to the eyeballs in debt and rapidly running out of servicing capacity.) The wage-inflation spiral was needed.
As a few have already noted, this is far from the terrible news that so many seem to take it to be. Worrying about core inflation (to say nothing of wage inflation) is, by and large, a concern of the well-off. For those on the other end of the spectrum, low unemployment is far more important, particularly when there is pressure to raise wages.
It is instructive to compare the recent and ongoing panic about inflation to the largely benign reaction (at least among the property-owning classes) to the far-larger rises in house prices in recent years. It would be hard to deny that the latter type of inflation has been far more destructive to NZ society, so perhaps we need to reassess our reactions.
Core inflation is purely an academic concept in my view. Anyone who's visited the real world, even if just on holiday, will realise that most people need to buy food to eat and fuel to get to work. Also with EV and plugin hybrid ownership increasing it's increasingly obscuring what core inflation actually means.
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