Unemployment rate much lower than expected by the Reserve Bank and economists in June quarter; Falls to 11-year low of 3.9%; Wages increase 0.7% off back of minimum wage hikes; Outlook remains gloomy

Unemployment rate much lower than expected by the Reserve Bank and economists in June quarter; Falls to 11-year low of 3.9%; Wages increase 0.7% off back of minimum wage hikes; Outlook remains gloomy

The unemployment rate fell much more than expected in the June quarter to an 11-year low.  

Figures released by Statistics New Zealand show the unemployment rate fell to 3.9% - an improvement from 4.2% in the May quarter and 4.4% in the June 2018 quarter.

The Reserve Bank (RBNZ), which is widely expected to cut the Official Cash Rate (OCR) on Wednesday, had forecast the unemployment rate to increase to 4.3%.

Bank economists were on a similar page, if not a tad gloomier. Wary of the deteriorating domestic economy and US-China trade war, those from ANZ and Kiwibank even revised their OCR outlooks down this week, saying they expect the rate to fall from 1.50% to 0.75% by next year.

While the data is highly unlikely to prevent the RBNZ from cutting the OCR on Wednesday, the question is how much weight the central bank will put on it in its commentary looking ahead.

It is worth noting the labour market is a lagging indicator of the health of the economy. The data can also be volatile.

The New Zealand dollar rose a half a cent to US65.7 cents on the news. 

The headline unemployment figure reflected a jump in the number of employed people without any corresponding jump in labour supply.

The participation rate remained at 70.4% in the June quarter, having sat at around 71% during the previous year, following several years of strong increases.

The under-utilisation rate fell to 11.0% from 11.3% in the previous quarter. This was the lowest rate since 2008.

The portion of 15 to 24-year-olds not in employment, education or training also fell to 10.3% - a figure relatively low when compared to that of recent years.

This picture of a tight labour market will go some way to supporting the argument made by the Government, as well as some economic observers, that capacity constraints are an impediment to more aggressive fiscal stimulus - IE the Government borrowing more than it currently is to spend more on infrastructure, teachers' pay, etc. 

However economists see things changing, with domestic growth sagging.

ASB economists said: "Today’s data showed the RBNZ continued to meet its “maximum sustainable employment” labour market objectives in Q2. Employment was strong and indicators of labour market slack pointed towards a clear tightening in labour market conditions.

"But more timely indicators suggest the worm has turned for the labour market.

"The broader economic slowdown now looks entrenched, and will likely translate into additional labour market slack ahead. Firms are reporting acute margin pressure and employment intentions are consistent with firms cutting staff.

"More policy support will be required to keep employment near its maximum sustainable level."

Wage growth boosted by minimum wage increase

Wages, or the labour cost index, was up 0.7% in the June quarter compared to the previous quarter and 2.1% compared to the June 2018 quarter.

This was the largest quarterly increase since December 2008.

The jump to some extent came off the back of the minimum wage increasing from $16.50 to $17.70 an hour in April. A number of collective agreements, like the nurses’ agreement, also came into effect.

Stripping out the minimum wage increase, the labour cost index would have increased by 0.5% in the quarter.

While wage increases were particularly notable in the retail and accommodation sectors, they were relatively broad-based, indicating there was some spillover from the minimum wage hike.

ANZ economists said tightness in the labour market had started to lift underlying wage inflation and was consistent with anecdotes that firms were struggling with cost pressures.

However taking out the minimum wage effect, they said wage inflation was picking up slowly. 

They concluded: “This labour market release comes too late to be incorporated into the RBNZ’s published forecasts, due out tomorrow. But the report certainly does not undo the case for a rate cut tomorrow morning.

“The global growth outlook has worsened, the domestic economy doesn’t look like it will pick up any time soon, and leading indicators of the labour market are turning in the other direction.

“We expect the RBNZ will leave the door open to further rate cuts beyond August, although the strength in this labour market report could weigh on the tone of the Committee statement and press conference.

“We think it is prudent to discount the noisy survey somewhat, given its inconsistency with other indicators.”

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Fascinating. And great news.
How does this play out against the rhetoric that the government are such bad managers of the economy?

How sure can we be of Statistics New Zealand’s data???


to true
don't count your chickens, knowing stats NZ they will reverse it in a month to show a massive increase

How can we be you are not a natbot?

How sure of Statistics New Zealand's data are you when it suits your own narrative?

stats nz works off household labour force surveys which I believe polls about 16000 households every 3 months. Assuming that means about 30000 adults that implies margins of error around 0.5%. Not very solid when trying to spot movements of less than that, so take with large grain of salt.

Yes but variances over time are smaller. The graph of unemployment shows a clear and consistent downtrend from 2013 to now.

True for that longer period and larger change, but viewing quarter by quarter changes of +/-0.3% are statistically meaningless when the margin of error is 0.5%.

Surely far more accurate employment figures could be easily obtained utilising monthly PAYE correlated against yearly IR3 data from IRD.

When Sep-12 is 6.5% and Jun-19 is 3.9% then the margin of error makes little difference - unemployment has been reducing. Any short-term measure has variance but longer-term trends are much clearer.

The IRD data in the IDI would not support this measurement. Many small businesses do not report earnings monthly (or pay PAYE). It can be used retrospectively or as a validation of the data at particular points in time.

DGM comment of the week.

I wouldn't rejoice yet. Read the fine print on Stats NZ's website.

The employment rate has fallen from its peak since Sep 2018, in trend terms, but since then successive drops in labour force participation rate has delivered us the record low unemployment rate.

What could be the cause of the dropping labour force participation? Losing jobs, or more people retiring than entering the job market?

Retirees will theoretically be excluded from the labour force participation figure as soon as they retire because the total workforce counts the working-age population of the country.
I believe leading indicators such as PSI, PMI, ANZ job ads, MBIE skilled vacancy index and business confidence have all been flashing red flags on falling employment levels; now these are just the chickens coming home to roost.

We are in the same part of the cycle as 2008. Boom times lead to lower participation. Can you guess what comes next?

Selling your house in Auckland and retiring early to the regions?

Ah yes, the kiwi dream. And expecting constant GDP growth at the same time. And calling themselves hard working. The irony...

People with enough money to get by deciding they can't be bothered working in the current economic environment anymore.

Advisor, the employment rate rose on the quarter, the participation remained the same . Your initial comment was misleading ?

What if the employment is reduced because public sector started to increase its number without adding any value for the end user (and payers)? it is very simple to spend tax money after all. I am not saying this is the case, just that your point about government achievement is a bit unfounded. You can get 100% employment if government employs anyone to do nothing but stamping papers 40 hours a week.

That seems to be the case down here in Wellington. Government dept. and agencies are on a hiring spree, quickly beefing up teams maybe to artificially reduce unemployment.

July is always government recruitment time as the FY starts 1 July

The numbers: http://www.ssc.govt.nz/public-service-workforce-data/hrc-workforce
Looks like increased by about 10-12000 (3-4%) 2017-2018, probably continuing that trend this year given general way that Labour tends to run govt.

To be fair, the previous government artificially kept FT worker headcount low by instead outsourcing the same work to expensive consultancies, paying out hundreds of millions in professional fees each year ($818m, to be precise, in the 12 months to June 2017).
On the flip side, I believe several of these consultants must still be gainfully employed by the current government in one or more of the scores of working groups.
Ah, we are doomed!

Indeed. We had former contractors (who'd been making $300k contracting) come knocking for full time jobs below half that because Labour's lifting that limit on headcount meant the contracting gravy train was slowing down precipitously. On top of contractor costs, you also had to factor in the lost knowledge as contractors moved - they'd often move mid-project because that was the time projects looked best, before any delays, cost overruns etc.

The headcount limit was pretty arbitrary and illusionary in terms of cost / efficiency savings.

And you're not even counting all the tricks that departments would do to get positions re-categorised as being back-office to front-line, thus allowing them to hire more back-office roles.

That's right. On the other hand, those contracted out to the public sector through large consultancy firms (big-4 etc.) are on a roll as they can now make more dough doing the same thing on relaxed deadlines and more perks as full-time government employees.
The ridiculous number of "professional service" providers that had sprouted up in the capital's CBD over the last half a decade are starting to disappear, as they rightly should.

Simple... there were almost 10,000 additional jobs created in Education and Training.... straight out of taxpayers pockets and creating jobs. No question of how much value.. but jobs.

Given the take up of the free tertiary has been disappointing I can only assume the 100s of talkfests and taskforces created by this government have been classified as educational (in fairness they are supposed to educate the government on the country they should be governing).

RBNZ will still cut as there is nothing being done to turn around the plummeting levels of productivity.

In finest 1970's style when P.M.s would tell Ministry of Railways and Ministry of Works to take on another 10000 when economy was looking dicey. 10000 is about 0.4% of today's workforce.


lagging indicator. rear view mirror: car crash in windscreen straight ahead.


So, why do we need rate cuts again?

At this juncture, and from some time back, lower interest rates aren't about providing more debt to the consumer (cheaper money) they are about protecting the banks' balance sheets; allowing stressed existing debtors to refinance and avoid liquidation as the collateral 'value' underlying loans gets incinerated. And it's not just financial assets that we are talking about here, but real ones as well....

because Business confidence is down and house prices are not rising,

Especially the latter. We must protect property portfolios even if it requires throwing penny-pinching pensioners under the bus to do so. All hail the housing market! The greater good of my portfolio!

Because we're entering a global currency war.


The Policy Target Agreement is to keep inflation between 1% and 3% over the medium term. The target is not and never has been 2%, it's to keep inflation within those bounds. Inflation has been running within those bounds for quite some time, so it begs the question - why further tightening?

The focus is on keeping future average inflation near the 2 percent target midpoint (see the link above). If CPI is under 2% it needs a nudge (i.e. OCR cut).

That is the longer term view, i.e. longer than the medium term target of between 1% and 3%. The RBNZ does not nudge inflation like that at all.

We'll see tomorrow then;)

I agree they will cut the rate - it's the reason behind it I disagree with you on.

It's best to disagree with Heavy G when it comes to the mechanics of the interest rate tool.
He doesn't have a clue about it or the nature of inflation being targeted (as you have alluded to). Most telling is that he seems to think the OCR is retrospective.

"so it begs the question - why further tightening?"

There won't be any tightening, ShoreThing, when the OCR gets cut, it's loosening

Right you are - I always get the two twisted.

We still need a rate cut because our $NZD has spiked again against the $USD. Usual story. We are just on the point of giving our exporters a helping hand with a lower dollar when, hey presto, some dubious statistic is released to raise our NZ Dollar; the statistic is definitely 'lagging' and has no bearing on what is happening NOW. It's important at this juncture to let our exporters make hay while the sun is still shining with a lower dollar. On the other hand we're encouraging promiscuous import behaviour: 'shiny toys' e.g. new twin-cab utes, suvs, electronic trinkets and gimcracks, plumbing and building materials of dubious quality; also mycoplasma bovis, stink bugs,etc, etc...

Our dollar is 10 cents down on where it had often been against the US dollar. Everything imported including petrol is more expensive as a result.

Really? So why is NZ inflation so low?

Everything I import is headed 6% north this year. All my competitors are pushing the same sort of rises... On average over the last 9 years we move 3% north unless we are making gains in currency somewhere, this is just to retain existing margin not to fleece the consumer.

You're not disputing that the dollar has moved that much, are you? It's on the charts.

The analysis of petrol a while back when much wailing and gnashing of teeth over tax took place showed a very sizeble chunk of the increase was due to exchange rate movement, for one example.

Re inflation, there has been good coverage right here on Interest.co.nz about the fallible or not necessarily completely representative make-up of our inflation measures:

https://www.interest.co.nz/news/100661/review-things-you-need-know-you-g... (section 4)

That's not to say that some prices haven't been declining, obviously. Probably a good chance of that at the same time when peolpe's discretionary spending is being squeezed by basic costs of living.

A friend highlighted just last night that in his industry they're seeing a very surprising level of deferred regular maintenance spending coupled with a significant increase in emergency maintenance spending. As if more people are only spending on maintenance if they're forced to by an emergency, but are otherwise not spending.

So seems like some significant costs are going up, and there's just less spending available for other stuff.

"You're not disputing that the dollar has moved that much, are you? It's on the charts"

Yes I am. The last time the NZD was 10 ct higher vs USD was before May 2015 over 4 years ago. As you say it's in the charts, look at today's charts on 90 at 9

Perhaps I should have said approximately 10 cents? We've been sitting lower half of $0.65 and we were at $0.75 in 2017, high $0.74s in 2018. So if you're not comfortable with rounding I guess that's a problem. Or if your bar is "don't mention 10 cents unless it's exceeded it and for X period". https://www.xe.com/currencycharts/?from=NZD&to=USD&view=2Y

Your own comment is incorrect, however. According to XE.com, in the last two years: close:0.65536 low:0.64370 high:0.75248

So if your issue is with precision...the last two years both occurred well after 2015.

No comment on the rest, though?

Have a nice rest of the day RS ; )

Lol, that shut him up.

Why so nasty Pragmatist?

That is because you're not very pragmatic with a lot of your comments..

Up until a week or so ago big-banks' picks for $NZD/USD at the end of September quarter:

BNZ .67
ASB .64
ANZ .63

It will be interesting to see, come September 30, which banks' economists should fall on their swords. Today, after employment surprise, we are at .6550 from .6500 earlier.
i.e. 1/2 cent up. Only a few weeks ago it was north of .67 i.e. 2 to 3 cents higher and devastating to farmers' gate milk price. Farmers, after all, 'bring home the bacon' for NZ.

No comment from Sharon yet ?

I would like to see the numbers, the % can be misleading, the number of people not working (all forms) may still be up, all governments are good at moving the classification around
also due to population growth the % could be down but numbers of not working up

Indeed, PAYE receipts on a monthly basis would be revealing, indicating (roughly) the true movements in employment and wages.

Typical end of economic cycle stuff (look at history), I wouldn’t get too excited about it.

Watch as the RBNZ goes ahead and cuts rates anyway!

Check the rate in the last half of 2007 - down to 3.3% in Dec07.
I've read elsewhere a sub 4% rate is the hallmark of impending recession, sign of topped out growth cycle.

So high unemployment rate is bad and a low unemployment rate is a sign of bad times to come?... You gotta love DGMs.

Well if you're inclined to glass half full thinking then I would say very high unemployment is a sign of better times to come.

Great times ahead for Syria according to you;)


So how would you keep increasing the GDP every year, if the whole population is already in the workforce? Do you think we should just increase immigration?

That's what I said. High unemployment = growth potential. Low unemployment = growth peak.

I agree with you, my comment was aimed at HeavyG

No, we should become more productive. Transition the work force to higher value added industries.

Your view of the world is that high unemployment = GDP growth. How's that working out for Greece after 8 years?

You're the one who would support flooding NZ with immigrants for a GDP boost (which will likely result in a GDP per capita drop).

"Your view of the world is that high unemployment = GDP growth. " - When did I say that?
"You're the one who would support flooding NZ with immigrants for a GDP boost " - I would only ever say that sarcastically.

The Phillips curve is dead, Stats NZ can't be relied upon, no inflation = Rates will still be cut otherwise A$/NZ$ is going to parity.

Phillips curve was dead in the 70s...

Can someone mention this to the Great Neighsayer, who had his usual rant in the Herald on Monday?

Ah, the king of hos?

That's interesting but the NZSX has dropped 1.98% in response to the US sell-off where DOW and S&P500 are down almost 3%. The 10 year treasury dropped heavily.

I haven't checked the volumes but it seems like a big sell off.

DOW Futures are currently showing at 630 point drop tomorrow morning...

Looking at S&P500 volumes it looks like there was a lot of buying over a month, then the previous few trading days positions were unloaded. The volume associated with the fall is small today, but I'm going to have a look tomorrow as there are after hours falls which might really kick off during the next trading session.


This Labour government is employing everyone thats on the dole to join a "Working Group" to improve the stats. LOL.

And what would the Great National Government do?

They employed Carlos

National would double dairy by 2025, then employ cleaners to improve water quality by 2057 and then hunters and trappers to make NZ pest free by 2275.

Or proclaim it all too hard to measure whilst also claiming to be data-driven.

Haha, good one, those dumb Nats always trying to improve thing using evidence based processes rather than hopes, feelings and magic beans like a truly great government does. You must be really pleased by Labour's efforts to hide health stats from the public, after all what good could come of the public knowing if the government is doing a good job or not?

Thanks Junior Staffer. Just pointing out that your own one-eyed portrayal isn't so realistic either.

I've never belonged to a political party, or worked for one, and mostly vote Act, but I'm blessed with good memory and think Key/English did a good job, turning Clark's deep structural deficits and natural calamities around to surplus, (failed at regulatory reform). I care about NZ's prosperity and policy to better achieve that for my kids, so find the current government's regressive policies dire. But you crusade for team Winston no matter their failures; all whataboutism and deflection sans balance, must be a personal loyalty/connection? because they are failing in pretty much everything they do.

but I'm blessed with good memory and think Key/English did a good job

No need to go contradicting yourself there.

Actually I voted for Key twice, National most of my life and never Labour. However, I still find your portrayals lacking in resemblance to reality. National failed to act on not just regulatory reform, but also failed to even admit to the existence of the housing crisis they campaigned on. They also went and built up an infrastructural deficit that we're now instead of a structural deficit you hark to with Clark (whom I also disliked), and funded projects that had no reasonable business case level (East-West Link). And "too hard to measure" was their very own term. A lot of people were disappointed with National because of how they ran then performed - you can't run on a housing crisis then claim no such thing exists for nine years, that's just silly.

And running an economy on foreign money inflows, double the OECD rate of too often low-skilled immigration, and rising house prices is no sound economic management, as we're now seeing.

Fair enough, we disagree on a lot. Key/English weren't perfect, and missed some problems as they were evolving - but the house issue was to a degree made unfixable by lack of building sector capacity in wake of GFC/earthquakes/leaky houses and sharp reductions in building productivity due to huge increase in regulation, it has been a long slow process to regrow it over last 7 years. I think Key/English were quite cognisant of the choice they made with regard to high immigration as a means to lift growth/GDP when they had no other tools to do the job, and the people they bought in will gradually lift our prosperity as they and their children integrate. That long term growth in NZ population and internal markets makes us slightly more resilient to the slings and arrows of global economic forces, and better able to compete abroad. Infrastucture issues are not unique to NZ. Everywhere in the west is facing massive problems associated with huge regulatory cost escalation to infrastructure build that has made it mostly unaffordable. The solutions for that will have to come from new disruptive technologies that work around the regulatory road-blocks using tunnelling, flight, autonomous robotics etc that are all likely to arrive within 10 years, old solutions and fantasies of transformational public transport buildout being uneconomic and unworkable in our day and age.

Good discussion, cheers!

Seems like immigration is something we need better leadership on, on both sides of the spectrum. E.g. three of our top four categories were chef, bar and restaurant manager, and another service role I forget the title of now. Quite how this helps economic growth is a strange thing eh...I know quite a bunch who are now on WFF and the Accommodation Supplement because these industries simply don't pay enough now. Yet the Restaurant Association is clamouring for unlimited incoming numbers to make more restaurants viable that otherwise would not be.

On infrastructure - sure, bunch of things we need to fix. I wish there was a party that would pull finger on them. That's what we hoped for from Key & Co. but never got. Just seemed too much self-interest around property portfolio values, which has ultimately sacrificed the wellbeing of younger and upcoming generations of NZers.

Heavy bias from Nat Party members/supporters is tiring.
We all have our political bias, but some of the anti- government rubbish spouted on this website is unreasonable.
The Nats had plenty of working groups...

Timely good news for the coalition given the Labour staffer Beehive sex abuse/rape scandal that Labour has just been revealed to have been covering up. Ardern needs to get herself overseas again toot sweet. Very short odds on her wagging from question time today. https://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=12255887

"...the labour market is a lagging indicator of the health of the economy."
I think employment and income are many people perception of the health of the economy. After all if you people can't get a job or have falling real incomes measures like GDP seem academic.

3.9% unemployment is amazingly low, basically if someone wants to get a job, they can

Yep. So the govt can't be doing a bad job in terms of the economy, right Yvil?

Was that a rhetorical question? Someone only with an understanding of economics can answer that question..

Just a shame so many don’t want a job or can’t pass the drug screening.

I have some sympathy for skepticism on the data, the way employment is measured and Stats NZ in general.
However it's been like this for years, including when National were in power. So despite potential limitations, it's an 'apples with apples' comparison.
And applying that, the current govt is doing well relative to the previous govt on the employment front. Having said that, I think it will worsen. But for now, this result should be welcomed and celebrated. Anyone who has lived in high unemployment times knows it ain't pretty.

Actually, life during The Great Depression wasn't as bad as many people think. In fact, there was more social cohesion and less nasty crimes. The vast majority of the populace felt they were 'in it' together. People helped each other a lot more and there was a more egalitarian feeling. My 96-year-old mother still remembers these things; her mother worked the vege garden all day. But yes, there was the other side: one of my grandfathers did come home bloodied one day after getting into a fight queuing for work at the freezing works (he had been a carpenter in better times). As a 71-year-old 'boomer I do feel my generation is probably the luckiest in many ways; as a young man I could walk into almost any employment off the street.

I graduated from uni in the early 90s. It was pretty hard finding work then, unemployment was at least 9-10%

About 94 there was a pick up I think. I guess though that the tough times had a silver lining.

Great news if it’s true. Although I am skeptical. We were told job creation was down from 12,000 a month at the peak, to just recently 800. Yet unemployment has fallen to under 4%. This implies either the workforce has shrunk. Or no one is being made redundant. (Plausible) or Stats NZ have made another error. Highly likely.