The unemployment rate was bumped off its 11-year low in the September quarter, rising in line with market expectations from 3.9% to 4.2%.
Painting a rosier picture, the underutilisation rate fell to a 10-year low of 10.4%, while the labour force participation rate increased slightly quarter-on-quarter, but was down year-on-year to 70.4%.
Tightness in the labour market gave wages a boost.
They increased by 2.4% over the year - the largest annual increase in a decade.
However stripping out the minimum wage increase and major pay settlements for teachers, police and nurses, wages only increased by 1.8%. Private sector wages increased by 2.3%.
Inflation, or the Consumer Price Index, was 1.5% in the September quarter.
Markets hardly reacted to the data. The NZ dollar initially inched a tiny bit lower against the US, but quickly recovered.
The question looking forward is how much weight the Reserve Bank (RBNZ) will place on this data when it comes to review the Official Cash Rate (OCR) next Wednesday.
It slashed the OCR by a whopping 50 basis points in August, just after the June quarter labour market figures were published and showed the unemployment rate dropping to an 11-year low.
It was mindful of the fact the labour market figures are known to be volatile and importantly, are a backward-looking indicator. Forward-looking indicators, like business confidence, paint a much gloomier picture of the economy.
The RBNZ said it front-loaded the August cut in an effort to stimulate the economy in advance of it potentially nose-diving.
Markets had been pretty certain the RBNZ would cut the OCR by 25 points to 0.75% on November 13, but in recent weeks started pricing the chances of a cut at 50-50, as the Federal Reserve indicated it would push pause on its interest rate cuts.
The September quarter data largely came in, in line with the RBNZ’s expectations.
The unemployment rate came in below what the RBNZ forecast in August (4.2% versus 4.4% forecast). However the participation rate came in slightly lower (70.4% vs 70.6% forecast).
Annual private sector wage growth was also stronger than the RBNZ had forecast (2.3% vs 2.0% forecast).
The RBNZ will, however, be mindful of the fact private sector wage growth was given a boost by the higher minimum wage and would've been affected by pay settlements pushing up public sector wages by 3% over the year.
Most economists not swayed by data and continue to pick a Nov OCR cut
ANZ economists said the labour market figures were unlikely to be a game-changer for the RBNZ when it reviews the OCR.
"An unemployment rate of 4.2% still indicates a ‘tight’ labour market, but it shouldn’t be forgotten that the RBNZ now has an employment mandate and the outlook for the labour market is looking cloudier.
The labour market lags economic activity, domestic growth doesn’t look like it is going to recover sharply from here, and businesses’ hiring intentions are low.
"We expect that below-trend economic growth will see the unemployment rate move up a little further over the next year, peaking around 4.5%, before a gradual recovery in GDP growth helps push it lower again.
"Although it isn’t the ‘lock’ it was, on balance we expect the RBNZ to cut the OCR 25bps next week at the November MPS and signal that further cuts remain a possibility should the dataflow and outlook warrant – we expect it will, in time."
Kiwibank economists had a similar view: "Employment growth continues to dry up as firms are less eager to hire in the face of a slowing economy.
"Today’s labour market report released by Stats NZ was all about pay. 'Payback' from a surprisingly solid June quarter print, the Government 'paying' up for frontline public service workers, and the RBNZ should 'pay' heed to a deteriorating labour market and cut the OCR next week."
Westpac economists however, who expect the RBNZ to keep the OCR on hold next week, saw the results as "a modestly positive surprise for the RBNZ relative to its (now dated) forecasts in the August Monetary Policy Statement".
"It appears that the unemployment rate has flattened off over the last year or so, rather than rising as we expected, as the wider economy has slowed."
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