The official unemployment rate is likely to have dipped back to a record low for the year to December 2022, and wage growth likely continued to accelerate to record levels, economists say.
Labour market data
The official unemployment rate is likely to have dipped back to a record low for the year to December 2022, and wage growth likely continued to accelerate to record levels, economists say.
Labour market data for the fourth quarter of 2022 - including unemployment and the rate of wage inflation - is due on Wednesday.
There are expectations that rising interest rates will slow the economy and push unemployment up over the year.
That should also reduce demand in the economy and see inflation fall back to more normal levels.
But the data from late 2022 is unlikely to show much sign of that slowdown.
“The labour market tends to lag the broader economic cycle, and the resurgence of wage inflation in particular likely has further to run,” said Westpac acting chief economist Michael Gordon.
Westpac and Kiwibank economists see unemployment holding steady at 3.3 per cent.
Others, like ASB and ANZ, expect it will fall back to its record low of 3.2 per cent.
However, all the economists note that picking the exact number is probably more art than science. The real focus will be on the details of the data.
That means looking at the ongoing strength of employment and the extent to which wage costs have continued to rise.
“Wages are expected to respond to the soaring cost of living and extremely tight labour market conditions. The Labour Cost Index (private sector ordinary time) should increase by 1.2 per cent (quarter on quarter) pushing annual wage growth to 4.3 per cent, its highest on record,” said ASB senior economist Mark Smith.
That’s still lower than the inflation rate experienced by most people but the rate of increase for average hourly earnings is expected to be much higher.
ANZ forecasts private sector hourly earnings will be up by a staggering 9.1 per cent year on year - well ahead of annual inflation at 7.2 per cent.
The different numbers reflect the different ways wage growth is measured in the Stats NZ Labour Data.
The quarterly Labour Cost Index measures changes in wages for a fixed quantity and quality of labour.
It is a measure of the additional amount that businesses need to pay to have the same amount of work completed to the same standard.
The average wage is calculated by dividing the total amount earned in wages by the number of jobs (or in some cases by the number of full-time equivalents).
Regardless of the measurement, the numbers will still look high to the Reserve Bank, which is still expected to raise the official cash rate in February - by either 50 basis points or 75 basis points (depending on how optimistically you read last week’s consumer price index inflation data).
Economists don’t expect the labour market data to shift the RBNZ’s immediate outlook.
But the economy was close to a turning point, said ASB senior economist Mark Smith.
“The demand for labour, while insatiable for much of 2022, is expected to cool over 2023,” he said.
“Pending recession for the New Zealand economy (we expect a circa 1 per cent contraction in GDP from mid-2023) should result in firms scaling back their demand for labour. This looks to be occurring.”
MBIE job ads had sharply cooled towards the end of 2022, with unadjusted job ads in December at their lowest level in two years, he noted.
Kiwibank also sees employment intentions starting to weaken after job ads fell late last year.
“We are forecasting the unemployment rate to begin lifting from around the middle of the year on its way to 5-5.5 per cent in 2024,” chief economist Jarrod Kerr wrote.
“The heat is expected to start coming out of the labour market in the second half of 2023. It has to for inflation to retreat.”
The “wildcard” in the data was likely to be the participation rate, said ANZ economist Finn Robinson.
“Last quarter, participation blasted past all expectations, hitting a new record high of 71.7 per cent,” he said.
ANZ had assumed the participation rate holds at that level to reach its estimate of 3.2 per cent unemployment.
But if it exceeds expectations or under-shoots then the final unemployment figure could vary by a few points in either direction.
“This uncertainty highlights the importance of taking in the entire labour market report (including wage growth) before reflecting on the implications for the RBNZ,” he said.
Kiwibank also expects the participation rate to hold up.
“The widespread availability of work, combined with a sharp rise in the cost of living, is likely to have attracted more workers to the labour force, said Kerr.
”In addition, the reopening of the border last year led to a return to net migration inflows over the second half of 2022 – driven by a rise in non-NZ long-term arrivals. Many of these arrivals are work ready.”
Despite the early signs of economic slowdown starting to emerge, Kiwibank is “not expecting meaningful signs of a weakening labour market until the middle of the year”, Kerr said.
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