Unemployment is on the rise this year. Photo / 123RF
Unemployment is on the rise this year. Photo / 123RF
Labour market data due to be released today at 10.45am will provide fresh clues as to how fast the economy is slowing and whether inflation is on the run.
Stats NZ will release the December quarter figures for unemployment, as well as employment and wage growth.
The consensus of economists is that unemployment rose from 3.9 per cent to 4.3 per cent. But it is also likely that more jobs were created than lost during the quarter.
“If the sheer quantum of labour market data released doesn’t bewilder a few, some of the outcomes might at first glance,” says BNZ economist Doug Steel.
“One would think that if employment increases, the unemployment rate would decline. Well, not necessarily this time around. That would be the case if there was a steady pool of labour. But the potential labour supply has been booming recently, driven by exceptionally strong net migration inflows.”
Steel said he expected the main message from the balance of today’s data to be that previous tightness in the labour market continued to abate.
“This would support our view of further wage disinflation ahead.”
However, it was unlikely that the overall mix of indicators would present a clear enough picture around overall disinflation to allow the Reserve Bank to relax its guard, he said.
Kiwibank and Westpac are both picking 4.2 per cent.
That was still a low level compared with history, said Westpac senior economist Michael Gordon. But it was now heading into what he describes as the “not too hot, not too cold” range.
“While employment is no longer directly in the RBNZ’s mandate, it’s a useful guide to how hot the economy is running, and in turn the extent of future inflation pressures,” Gordon said.
The labour surveys were the last major data release ahead of the Reserve Bank’s monetary policy statement at the end of this month, he noted.
Michael Gordon, chief economist of Westpac.
“Our estimates are mostly in line with the RBNZ’s previous forecasts from November. So if the results pan out as expected, the RBNZ will most likely stick with its recent messaging: We’re making progress on taming inflation, but there’s still a long way to go, and the greater risk is in taking their foot off the brakes prematurely.”
While the economy has undoubtedly slowed it likely continues to create jobs. But record net migration was creating the excess capacity.
“Broadly speaking, labour demand is breaking down,” said Kiwibank senior economist Mary Jo Vergara.
“Firms simply don’t need workers with the same desperation as years past. According to Mbie [Ministry of Business, Innovation and Employment] data, the number of job vacancies advertised online declined around 7.5 per cent over the quarter, and over 25 per cent from last year’s levels.”
There were clear signs that the RBNZ’s “heavy-handed” hikes were inhibiting household demand and hurting business, she said.
“If firms expect to pump out less output, then an extra pair of hands may prove too costly. We expect employment growth to weaken further in the coming quarters.”
On the wage front, Westpac is picking a 0.8 per cent rise in the overall Labour Cost Index (LCI) for the December quarter.
“On an annual basis, wage inflation has just passed its peak, and we expect it to slow further from 4.2 per cent to 3.9 per cent,” Gordon said.
“The turning point in wage inflation has been more obvious in the private sector; there was a sharp lift for the public sector in the September quarter due to some large wage agreements taking effect, but that won’t be repeated this time.”
- Check back at 10.45am for the fresh figures as they break
Liam Dann is Business Editor at Large for the New Zealand Herald. He is a senior writer and columnist as well as presenting and producing videos and podcasts. He joined the Herald in 2003.
