Statistics NZ reports jobs fell 0.4% in Sept qtr and unemployment rate rose to 6.0% from 5.9% as participation rate also fell; jobs growth weaker than expected

Statistics NZ reports jobs fell 0.4% in Sept qtr and unemployment rate rose to 6.0% from 5.9% as participation rate also fell; jobs growth weaker than expected

By Bernard Hickey

Employment and wage growth weakened more than expected in the September quarter, increasing the chances of a fourth rate cut on December 10 and raising the prospect that record net migration combined with a slowing jobs market could push the unemployment rate up towards 7% next year.

Statistics New Zealand reported employment fell 0.4% or 11,000 in the September quarter from the June quarter, which was the first fall in employment in three years and weaker than market expectations for growth of around 0.4% and the Reserve Bank's forecast for growth of 0.5%.

However, the unemployment rate only rose by 0.1% or 3,000 to 6.0% and a total of 151,000, which was in line with market expectations because the participation rate fell 0.7% to 68.6%. The latest quarter had the largest increase in the number of people not in the workforce since the March 2009 quarter. If the participation rate had stayed at its March quarter record high of 69.5%, the unemployment rate would have been 7.2% in the September quarter.

“Until recently, the labour market has been keeping pace with New Zealand's population growth, but in the past three months this has changed,” Statistics NZ labour market and households statistics manager Diane Ramsay said.

Annual employment growth fell to 1.5% in the September quarter from 3.0% in the June quarter.

“Over the year, most growth was in construction. The vast majority of this growth was in Auckland, as construction growth there continued to outpace Canterbury," Ramsay said.

Auckland jobs rose 11,500 over the year, while Bay of Plenty jobs rose 8,100. They were the two largest contributors to annual jobs growth of 34,000.

Wage growth weak

Wage growth was also softer than forecast, which is expected to increase the pressure on the Reserve Bank to cut interest rates when it releases its December quarter Monetary Policy Statement on December 10.

Private sector wage growth, as measured by the Labour Cost Index which strips out the effects of promotions, fell to 0.4% in the September quarter from 0.5% in the June quarter and was lower than the consensus economist forecast for growth of 0.5%. This meant annual private sector Labour Cost Index inflation fell to 1.7% in the September quarte from 1.8% in the June quarter.

Private sector average hourly ordinary time earnings, as measured Quarterly Employment Survey, rose 0.9% in the quarter, which was down from 1.2% in the June quarter and took annual wage inflation down to 2.7% from 3.2% in the June quarter.

Economist reaction

Westpac Senior Economist Satish Ranchhod said the figures were weaker than expected, including falls in employment and participation and "a mild downside surprise on wages."

"The sharp pull back in labour force participation partially offset the fall in employment, resulting in only a modest increase in the unemployment rate," Ranchhod said.

"Wage inflation has been dampened by low consumer price inflation, which has meant that cost of living adjustments to wages have been limited," he said, noting slowing GDP growth and a rising unemployment rate meant there was limited scope for any matrial rise in wage inflation.

"Overall, today’s data adds to the signs that the economy has lost some steam, and reinforces our expectation that the RBNZ will need to continue cutting the OCR over the coming months."

ASB Chief Economist Nick Tuffley said the labour market was weak across all three surveys (HLFS, QES and LCI).

"The data reinforce our view that the RBNZ should cut the OCR again in December. And the risk is the OCR gets cut even lower over 2016," Tuffley said.

"There is a growing risk that migration inflows remain strong even as employment growth moderates over the next year, resulting in a drift higher in the unemployment rate and subdued wage growth," he said.

ANZ Senior Economist Philip Borkin said the employment perhaps overstated the degree of weakness, pointing to the Quarterly Employment Survey's measure showing filled jobs rose 0.7% in the quarter and the Household Labour Force Survey's measure of hours worked rising 0.4%, while the QES measure of paid hourse rose 0.9%.

"It is also interesting that the drop in HLFS employment was led entirely by a 4.1% q/q drop in part-time employment. Full-time employment actually rose 0.2% q/q," Borkin said.

"Nevertheless, with the unemployment rate continuing to grind higher and wage growth benign, it is certainly a backdrop consistent with a need for more monetary policy easing," he said.

"Today’s figures arguably increase the odds of that easing being delivered as soon as December, but we are not entirely convinced of that yet, with the NZD, dairy prices and the global backdrop arguably set to hold sway. Labour market data typically lags the rest of the economy, and more timely growth indicators are now picking up."

First NZ Capital Economist Chris Green said the underlying tone of the figures was unambiguously weaker than the 6.0% unemployment rate suggested.

"Significantly, the wages outturn continues to remain below the RBNZ’s 2% inflation target mid-point, suggesting that wage-setting outcomes appear to be settling at levels lower than is consistent with the inflation target," Green said.

BNZ Senior Economist Craig Ebert said the figures were definitely underwhelming, but not as negative as the headline figures suggested.

"As such, they keep the case for further OCR easing alive, just when the market looked to be going off the idea," Ebert said.

However, BNZ did not believe the jobs market was stalling.

"Indeed, it’s looking increasing likely that employment will find its feet in Q4 and keep expanding at reasonable rate, in a trend sense, in the New Year," Ebert said.

Ebert said the 1.7% annual LCI inflation was consistent with the Reserve Bank's 1-3% target band and QES private sector hourly wage inflation of 2.7% for the year confirmed real wage growth of over 2% for the year.

"That’s pretty solid from an employee’s point of view," he said.

(Updated with more detail, reaction, chart)

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16 Comments

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OCR down OCR down OCR down

Yes Mr Wheeler you need to drop the OCR - what are you waiting for - Armageddon?

Who expected them to be good?
Farms are shedding workers (I know a few now out of work).

But not any of the 14,000 Filipino workers on NZ dairy farms?

12
up

meanwhile door at auckland airport has been taken off the hinges to let more in

But we have a boooming economy, house prices rising, sharemarket going up, maybe not quite rockstar but at least Milli Vanilli.

Private sector wage growth, as measured by the Labour Cost Index which strips out the effects of promotions, fell to 0.4% in the September quarter from 0.5% in the June quarter and was lower than the consensus economist forecast for growth of 0.5%. This meant annual private sector Labour Cost Index inflation fell to 1.7% in the September quarte from 1.8% in the June quarter.

...fear not, they say: economic power no longer needs to be subject to the rule of law. It can regulate itself. The downward course of labour's share of the spoils of society's endeavours is an obvious consequence. Read more

One must ask is the RBNZ populated completely by the mentally challenged? What do they need to happen before they see that interest rates at their current levels are far too high.

But Roger Kerr told us that growth was going gangbusters and that inflation was going to spike any day now! We all know how much sense this makes seeing as price growth has nothing to do with incomes...

...

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rogeradvice.com please subscribe now - someone please subscribe...

He has shown to be utterly wrong and clueless since 2008.

"What has worked, instead, is Macroeconomics 101, which is why people like me — or, if you really dislike yours truly, Ben Bernanke — have done pretty well. (I was at a book party a couple of months back, and was accosted by one very famous investor who said, bitterly, “Well, so far the markets agree with you.”)"

Shouldn't booming house prices translate into greater confidence among consumers thereby driving spending, particularly on retail? This should have positive impacts on employment. Surely that's one of the positive implications of a property boom.

no beacuse more and more of peoples incomes is going towards servcing the bigger and bigger loans needed taking money away from consumer spending.

and still we import ppl?

Cmon Steven, get with the program. Our short term thinking, do nothing government knows that immigration will keep GDP growth positive, no one really looks at GDP per capita which probably has us in a recession. The govt's economic policy is all about immigrants building houses for immigrants building houses for immigrants building... The ultimate PONZI.
When the crunch comes its going to be awful. Employment, house prices, crime - the whole dogs bollocks." When " is the question, not "if".
Curtailing immigration should be a priority right now before it becomes the ultimate too big to fail - especially the education / immigration rort that is occurring. Two hour a week degree students from overseas taking the entry jobs of kiwis is not why I voted National. I have children.

The OCR should never have been raised last year, simple.

Bernard, What a lot of rot. The govt stats are a cook up and reflect more modern "picky" attitudes to work than necessity. These numbers you report are custom designed to aid the RBNZ granting more free money to banksters in December. The real state of (un)employment is recorded here: http://www.msd.govt.nz/about-msd-and-our-work/publications-resources/sta...
The number of all working age benefits (except "supported living" a euphemism for shunting the insane out of care and into the world) have been falling steadily since 2010.