Labour market improving only slightly

Dominick Stephens. Photo / Mark Mitchell

Figures due this week are expected to show the labour market improving, but only enough to trim the unemployment rate from 6.8 to 6.7 per cent.

The household labour force survey recorded the loss of 52,000 jobs during 2009, enough to push the unemployment rate from 4.6 to 7.1 per cent.

Over the first half of this year 15,000 jobs were added, pulling the unemployment rate down to 6.8 per cent.

In a Reuters poll of market economists the median expectation for the September quarter, due to be reported on Thursday, is that employment grew by 0.5 per cent (11,000 people) and that the unemployment rate has eased to 6.7 per cent. The Reserve Bank, however, is picking an unemployment rate of 6.2 per cent, followed by a gentle decline to 5.3 per cent over the next 18 months.

"The broader suite of indicators paints a picture of a labour market that has been gradually improving throughout 2010," Westpac economist Dominick Stephens said.

"However, the pace of improvement probably slowed in the June quarter, reflecting a broad loss of confidence, and we expect more of the same for the September quarter."

On the supply side of the market, the net inflow of migrants, which had dwindled markedly during the first half of the year, has recovered over the past three months.

Statistics New Zealand says the working age population increased by 9000 during the September quarter, or 5000 if those over 65 are excluded.

On the demand side, last week's National Bank business sentiment survey found a net 8 per cent of firms expect to increase staff numbers over the year ahead, following four months of decline from the high levels of hiring intentions recorded earlier in the year.

The Institute of Economic Research's quarterly survey of business opinion likewise recorded a pick-up in hiring intentions.

Firms also reported it was getting more difficult to find skilled labour, but not to anything like in the years before recession hit in 2008. Online job advertisements increased by 5.1 per cent over the September quarter, the Department of Labour said. However, that represents an easing in the rate of growth; job ads have climbed by 41 per cent over the past year. On the other hand the number of people drawing the unemployment benefit - only a minority of those the statisticians recognise as unemployed and an even smaller minority of those who don't have a job but want one - rose by 3200 or 5 per cent during the September quarter.

Meanwhile, the labour cost index, due tomorrow, is expected to show a 0.4 per cent increase in salaries and ordinary time wage rates in the private sector, making an annual increase of 1.4 per cent, according to the Reuters poll.

Stephens is looking for 0.6 for the quarter and 1.6 per cent for the year.

"Most people get their pay rise in the second half of the year," he said.

"With the labour market on an improving trend, now is the time wage inflation can be expected to begin its long, slow grind higher."

But it is likely to show up not as larger pay rises, but as a greater proportion of workers getting a raise.