The unemployment rate picked up in the December quarter a tad more than expected from the decade-low it fell to in the September quarter.
Statistics New Zealand data shows the rate rose to 4.3%, from 4.0% (revised up from 3.9%).
Given the surprisingly large fall in the unemployment rate in the September quarter, economists had expected this to reverse out in the December quarter.
They saw the unemployment rate rising to 4.1% (from that lower starting point of 3.9%).
However, as ANZ economists said earlier in the week, the figures have been volatile lately, so it would’ve taken a bit for the December quarter data to surprise them.
Economists across the board see the figures painting a more modest picture of the labour market.
Looking at wages, these were up 1.9% in the year to December – up 0.1% from the year to September.
The market had expected wages to rise by 2.0%. Increases in the private sector were greater than those in the public sector, at 2.0% versus 1.7%.
April’s minimum wage increase saw the retail sector make a key contribution to the hike in private sector wages.
In the public sector, wage inflation reflected the remaining two-thirds of the nurses’ pay settlement, which came into effect in August.
The release of the labour market data saw the New Zealand dollar fall from 68.3 USc to 67.6 USc – the lowest it's been in about two weeks.
It is worth noting that Statistics New Zealand made a number of adjustments in its December quarter data, as it asked employed people extra questions when it gathered information as a part of its survey of working life.
Economists agree this has made the data volatile.
With the figures being the last set of important ones released before the Official Cash Rate (OCR) is reviewed and Monetary Policy Statement (MPS) published on February 13, this will make the Reserve Bank’s (RBNZ) job more difficult.
Risk of a rate cut risen “meaningfully” in recent months
There is consensus among economists that the RBNZ will keep the OCR on hold this time around. While the outlook from there is divided, it is becoming less upbeat.
ASB chief economist Nick Tuffley says: “The labour market is still reasonably tight and the RBNZ looks to be meeting its objectives of “supporting maximum sustainable employment within the economy”.
“However, the lack of an inflationary smoking gun keeps the prospect of possible OCR cuts alive.”
Kiwibank economists Jarrod Kerr and Jeremy Couchman say: “Over the last year the direction of the labour market has generally been one way. That is, the labour market has tightened, demand for labour has been more than enough to offset a growing labour force, and wages are rising.
“Compared to the RBNZ’s November MPS forecasts the labour market is developing in line with their view.”
They say the risk of a rate cut has risen “meaningfully” in recent months, because offshore developments have worsened, and the outlook for credit growth is clouded.
ANZ economists are outliers in forecasting three cuts bringing the OCR down to 1.00% by next year.
ANZ senior economist Liz Kendall says: “Today’s data suggest that the labour market has stabilised, recent improvement has been only gradual, and that the best may in fact be behind us.
“The labour market is currently in “stretched” territory and firms are finding it difficult to find skilled labour. However, the labour market lags the overall activity cycle, and the current degree of tightness reflects the past few years of economic expansion.
“Looking forward, growth momentum has faded and it looks increasingly difficult for the economy to grow above trend from here. Given this, we suspect that the peak in resource pressures may have passed…
“Today’s data could add to a more cautious tone from the RBNZ next week, even if their central forecasts do not change significantly.”