Wage growth 'failing to fire' as unemployment rises

Latest employment data shows wages are rising. Photo / File

Unemployment rose to 4.3 per cent in the December quarter up from four per cent in the previous quarter, the latest Labour market data from Stats NZ shows.

That was slightly higher than expected and the New Zealand dollar slumped by more than half a cent against the greenback on as the odds on an official cash rate cut grew.

Economists surveyed by Bloomberg had tipped the unemployment rate to rise to 4.1 per cent.

Wages rose - but marginally - by 1.9 per cent.

"Wage growth, however, is failing to fire," said ASB chief economist Nick Tuffley. "On the basis of today's figures the hurdle to an OCR hike is high, but if wage inflation remains low, the OCR could move lower."

The rise in unemployment was largely influenced by more unemployed men (up 8,000). For women, unemployment rose 2,000.

For men and women combined, there were 12,000 more unemployed youth (15–24-year-olds).

"The unemployment rate for men rose to 4.4 per cent in the December quarter, while it was 4.2 per cent for women. This was the first time since June 2010 that this rate was lower for women than men," labour market and household statistics senior manager, Jason Attewell said.

The labour cost index (LCI) increased 1.9 percent in the year to the December 2018 quarter.

"In the December quarter, the nurses' pay settlement, which came into effect in August 2018, affected LCI and Quarterly Employment survey public sector wage and earnings measures," Attewell said.

StatsNZ noted that earlier employment figures had been subject to revision survey questions were enhanced to improve accuracy.

That meant the September quarter figure was revised to four per cent from 3.9 per cent.

"Without the adjustment this quarter, the unemployment rate would have been 4.4 percent rather than 4.3 percent," Attewell said.

Today's figures suggested that the labour market was not as tight as suggested by the 2018 third quarter report, Tuffley said.

"Which weakens the case for an OCR hike. Our expectation is that wage pressures will firm over the course of the year, but with little corroborating evidence having emerged and with firms under increasing margin pressures, there is risk around this. If economic growth fails to strengthen after its 2018 second half lull and wage growth does not pick up, the OCR could test new lows."