“That’s a touch less than the 5.1% that we and the Reserve Bank had previously forecast, reflecting the fact that recent jobs data has been slightly better than expected.”
The September quarter data showed a falling labour market participation rate was softening the impact of job losses.
Gordon expected that trend to continue.
“We expect the drop in employment to be accompanied by a fall in the participation rate from 71.2% to 71%,” he said.
Falling participation had absorbed a great deal of the softness in jobs over the past year.
“Much of the current cycle in employment has been driven by young people, who were drawn into the workforce in 2021-22 when the labour market was tight and migrant workers weren’t available,” he said.
“As those conditions have reversed, many of them are ending up back at school rather than continuing to look for work.”
The result was that the official unemployment rate had risen at a slower pace than many economists were expecting, and forecasts of where it will peak this year have been gradually revised down.
Meanwhile, the softening jobs market, with the easing in inflation, meant that we would likely see a further slowdown in wage growth, Gordon said.
A reflection of spare capacity in the labour market, wage growth would continue to ease back to levels consistent with the RBNZ’s inflation target, ANZ’s Russell said.
He expected to see annual growth in the private sector Labour Cost Index (including overtime) to slow from 3.3% to 2.9% in the December data.
Annual growth in private sector average hourly earnings (ordinary time), was expected to slow from 3.2% to 3%, around levels historically consistent with target inflation.
“Just as the labour market tends to lag the broader economic cycle, wage growth tends to reflect past labour market conditions,” he said.
“As such, wage growth measures are very much a look in the rear-view mirror.”
A more timely forward indicator of wage growth, the ANZ Business Outlook, survey suggested the adjustment in wages had already occurred and wages were no longer a threat to domestic inflation, Russell said.
ASB senior economist Mark Smith noted correctly picking labour market outturns often required some luck “given the many moving parts and statistical vagaries of the figures”.
“But we have landed with fourth-quarter figures close to the RBNZ view,” he said.
“The protracted economic slowdown looks to have caught up with the labour market, with the figures expected to show further cooling.”
A second consecutive quarterly decline was expected for employment with a net 30,000 jobs lost over 2024, he said.
The figures for the September 2024 quarter showed there were 148,000 unemployed Kiwis — an annual increase of about 29,000.
Low growth in the labour force would dampen the peak in the unemployment rate (at about 5.2% in the first half of 2025), with the rate subsequently easing, Smith said.
“With inflation close to the target midpoint and monetary settings still slowing the economy, further swift monetary easing looks appropriate to limit economic and labour market scarring.
“We expect another 50 basis point OCR cut in February (to 3.75%), with the RBNZ to then revert to a more measured pace of easing, and with the OCR hitting 3.25% by mid-2025,” he said.
Liam Dann is business editor-at-large for the New Zealand Herald. He is a senior writer and columnist, and also presents and produces videos and podcasts. He joined the Herald in 2003.
