There are signs that suggest the job market is worse than it looks. Photo / 123RF
There are signs that suggest the job market is worse than it looks. Photo / 123RF
COMMENT:
Beneath the solid headline numbers, there are signs that suggest the job market is worse than it looks - with further softening to come.
Unemployment ticked up slightly to 4.2 per cent in the September quarter and wage growth (the Labour Cost Index) cracked a decade high at 2.4per cent.
But economists warn that the labour market data is lagging economic activity and will likely deteriorate further following indicators in business confidence surveys.
"September quarter data showed a few cracks are starting to appear in NZ's previously rock-solid labour market," said ASB senior economist Mike Jones.
Employment growth was just 0.2 per cent (quarter on quarter), down from 0.7 per cent, he noted.
"Softer economic momentum looks set to persist at least until the end of the year."
On the plus side wages were robust and a broader measure of labour market tightness did strengthen,' she said.
The underutilisation rate ticked down to 10.4 per cent from 11.0 per cent last quarter.
With the rise of the gig economy, underutilisation is an increasingly important measure of untapped capacity in the labour market. It includes those employed part-time who are seeking more work (the underemployed) as well as the unemployed.
On the surface the lower underutilisation rate suggested there was "limited slack in the labour market", said KiwiBank chief economist Jarrod Kerr.
"But the direction of a slowing labour market suggests that slack will lift from here."
"Employment growth continues to dry up as firms are less eager to hire in the face of a slowing economy."
Bed Udy, at Capital Economics in Sydney, warned the unemployment could slide even further if confidence doesn't rebound.
"Given the weakness in business surveys, alongside the higher minimum wage and the slowdown in economic activity, we think the unemployment rate will continue to rise, to reach 4.7 per cent by the middle of next year," he said.
Like the employment data, upbeat wage growth figures - which hit a 10-year high - look less impressive the deeper you dig into the numbers.
There's no question they have been flattered by stimulatory Government policies.
While the Labour Cost Index rose 0.8 per cent for the quarter, to an annual rate of 2.4 per cent, growth on the private sector index was just 2.3 per cent. Meanwhile the public sector index saw a lively 3 per cent bump.
Pay settlements with teachers, nurses and police lifted the index and, with further rounds coming, they are likely to do so into next year as well.
The private sector index was also inflated by minimum wage legislation.
Excluding minimum wage increases that index was up just 1.9 per cent year on year.
Still for all that, all pay rises are very real for those who get them and will help left consumer sentiment.
Timing wise, Government intervention in the labour market works quite well for this economic cycle - with most pundits calling for more fiscal stimulus.
Now a big question looms for the Reserve Bank - which makes another official cash rate call next week.
Is more monetary policy stimulus needed? And if so, when?
Reserve Bank of NZ Governor Adrian Orr. Photo / File
Even the more downbeat forecasts don't have numbers straying from the Bank's "maximum sustainable employment" rate.
That begs the question as to whether we need interest rates to go much lower in the short term.
Economists are split.
Most still expect a cut next week (taking the rate to 0.75 per cent) but some - like the Westpac and Capital Economics teams - are picking a pause before further cuts next year.
Despite the wider slowdown, unemployment has stayed lower than the Reserve Bank had anticipated.
Next Wednesday's official cash rate call is looking increasingly like it could go either way, depending on the strategic thinking of the RBNZ monetary policy committee and Governor Adrian Orr.
