Falling unemployment rate streak picked to end on Wednesday

Economists say it’s likely New Zealand’s unemployment rate won’t move when the data is released on Wednesday, but wage inflation is expected to jump

30th Jul 18, 12:01pm by Jason Walls

Economists aren’t picking much change to New Zealand’s unemployment rate but are expecting wage inflation to pick up in this quarter’s employment numbers.

ASB, Westpac, ANZ, BNZ and the Reserve Bank are all forecasting the unemployment rate to remain unchanged at 4.4% come Wednesday when the data is released by Statistics New Zealand.

“The labour market has gradually tightened and is close to full employment,” says ANZ Senior Economist Liz Kendall.

New Zealand’s unemployment rate, which rose to almost 7% in 2012, has been gradually falling ever since.

It has fallen in every quarter since December 2016, dropping to 4.4% in the first quarter of this year.

“We estimate that the unemployment rate is now at or slightly below neutral, meaning the labour market is ‘tight’,” Kendall says.

She says the economy is experiencing a moderation in employment growth as firms are finding it difficult to find skilled labour.

ANZ’s job ads data has seen a softening as well, Kendall says.

Westpac Senior Economist Michael Gordon says strong growth to date appears to have taken the labour market into ‘tight’ territory.

“The unemployment rate is at a nine-year low and businesses are increasingly expressing concerns about the difficulty of finding workers and the likely impact of pay increases.”

From here, he is expecting the unemployment rate to start heading back up, hitting 4.7% in the first quarter of next year.

That is in stark contrast to BNZ’s expectations – Senior Economist Craig Ebert is expecting the unemployment rate to fall to 4.2% over the same period.

This is because demand for labour in the market is still higher than the supply, despite a forecast fall in migration.

In fact, Ebert says he wouldn’t be surprised if the unemployment rate went sub-4% before too much longer in this cycle.

Although economists are expecting the labour market to soften, there is good news on the wages front.

ASB Senior Economist Mark Smith says the higher minimum wage, which increased to $16.50 in April, is the catalyst behind an expected 0.6% increase in overall annual wage inflation.

In the private sector, wage inflation is forecast to be 2.1%, the highest since mid-2012, he says.

“The April 2018 increase in the minimum wage is expected to contribute approximately 0.1-0.2 percentage points to annual wage inflation.”

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7 Comments

by Squishy | 30th Jul 18, 12:45pm 1532911534

With unemployment so low wage growth is likely to be a more important as a metric of economic health.

by theglc | 30th Jul 18, 2:32pm 1532917942

"She says the economy is experiencing a moderation in employment growth as firms are finding it difficult to find skilled labour."

I think firms are finding it more difficult to find "Cheap" skilled labour, so therefore they will need to compete to get the right person and that equals wage growth which can only be a good thing

by Lapun | 30th Jul 18, 2:58pm 1532919511

Unemployment 4% but under-employment is 13%. So about one in 12 have a job but are looking for more work. Defining employed as minimum of one hour per week is misleading.

by Davo36 | 30th Jul 18, 4:33pm 1532925186

Do you have a link for that assertion? The one hour per week == employed I mean.

by nymad | 30th Jul 18, 4:42pm 1532925771

It's not an assertion - it's how it is defined in New Zealand.

http://archive.stats.govt.nz/browse_for_stats/income-and-work/employmen…

by sharetrader | 30th Jul 18, 6:34pm 1532932450

its a horrible measure, very misleading on the true state of unemployed

Employed: people in the working-age population who, during the reference week, did one of the following:
worked for one hour or more for pay or profit in the context of an employee/employer relationship or self-employment
worked without pay for one hour or more in work which contributed directly to the operation of a farm, business, or professional practice owned or operated by a relative
had a job but were not at work due to: own illness or injury, personal or family responsibilities, bad weather or mechanical breakdown, direct involvement in an industrial dispute, or leave or holiday.

by K.W. | 31st Jul 18, 4:24pm 1533011055

Correct. And if the overseas experience is any guide, an increase to the minimum wage will be offset by a reduction in working hours, so an increase in under-employment. There will be no wage inflation in NZ while immigrants pour into the country prepared to work for low wages and on part time or casual contracts.
Everyone points to employment figures as the harbinger of a recession, but its not the 1950's any more. Todays massively indebted population will not be able to cope with a loss of a few working hours per week, let alone their whole job. A rise in under-employment will bring on recession.