Rise in jobseekers lifts unemployment

While construction jobs remained steady in the latest quarter, over the whole of last year employment in the building sector increased by 14%. Photo / NZME.

A surge in the number of job seekers outpaced strong employment growth in the last three months of 2014 and is keeping a lid on pay rises.

Employment grew 1.2 per cent in the quarter but the 28,000 jobs added were outstripped by a record 36,000 rise in the labour force.

That pushed the unemployment rate up to 5.7 per cent from 5.4 per cent previously and the number of people unemployed rose 8000 to 143,000, the highest level since March last year.

Over the whole of 2014 the labour force grew by 76,000, boosted by record net immigration and by a rise in the participation rate, which is the proportion of the working age population (those 15 or older) either employed or actively seeking work.

The participation rate has reached a record 69.7 per cent, up from 69 per cent in September. Had it remained where it was a year ago, the unemployment rate would be below 5 per cent, said ANZ economist Mark Smith.

Westpac economist Satish Ranchod said some of the strong increase in labour force participation might prove to be transitory, and that could swing the unemployment rate around a bit.

"However, the underlying outlook for the labour market is positive."

Employment growth was strongest in the primary sector and manufacturing. While construction jobs remained steady in the latest quarter, over the whole of 2014 employment in the building sector had increased by 14 per cent.

The labour force growth almost matched last year's 80,000 increase in the number of people employed, a rise of 3.5 per cent.

With the supply and demand sides of the labour market growing by almost the same amount, wage inflation remained subdued.

The labour cost index recorded a rise of 0.5 per cent in the private sector salary and ordinary time wage rates in the December quarter, making 1.8 per cent for the year.

Among the 59 per cent of wage rates which increased, the average rise was 3.2 per cent, down slightly from 3.3 per cent in the September quarter. Wage inflation has not shown any material pick-up since the global financial crisis, Ranchod said.

" During the mid-2000s when New Zealand had strong growth in nominal wage rates, we also had high rates of general inflation that eroded households' purchasing power.

"In recent years, while we've had low wage inflation, we've had even lower consumer price inflation. This has meant that cost of living adjustments to wages have been limited."

Bank of New Zealand economist Craig Ebert said the lack of acceleration in wage rates gave the Reserve Bank time to persist with an official cash rate on the stimulatory side of neutral at 3.5 per cent, rather than being any justification to cut it.

The rise in the unemployment rate to 5.7 per cent might be seen as evidence of more spare capacity in the labour market, Ebert said.

"We wouldn't be so sure," he said, pointing to the employment rate (the proportion of the working age population employed) which rose from 65.3 to 65.7 per cent.

"It is now within spitting distance of the all-time high of 65.9 per cent reached in early 2008, the very tail end of the previous boom," he said.

Smith said the strength of the labour market was a reminder the economy still had some pretty rock-solid credentials. "Those gunning for an OCR cut soon may be disappointed, short of a global accident."