Westpac Institutional Bank Team
Westpac Institutional Bank
The New Zealand economy has been slowing since 2016, and that came through in the September quarter labour market figures released by Stats NZ last week. However, the labour market is in better fettle than one would expect given the state of business confidence. Jobs growth has clearly slowed, but workers remain in short supply and wage inflation is gradually building. The RBNZ decision on Wednesday is a close call. We favour on hold, although the remaining uncertainty is Tuesday's inflation expectations data.
Annual employment growth according to the Household Labour Force Survey (HLFS) has slowed to 0.8%, whereas two years ago it was above 4%. Similarly, the number of hours paid according to the Quarterly Employment Survey (QES) rose just 0.4% over the quarter, consistent with a slow economy. Actually, the detail of the QES report implies a little downside risk to our Q3 GDP forecast of 0.3%.
The unemployment rate rose to 4.2%, reversing the fall to an 11-year low of 3.9% that we saw in the June quarter. That previous result came as a surprise to everyone, and we suspected that there was some survey noise involved. Last week's result supported that view. Stepping back a bit, the unemployment rate appears to have flattened off over the last year or so, after falling steady for years before that. That's not a bad result given the slowdown in the economy. Our work suggests that the neutral, or non-inflationary, unemployment rate in New Zealand is around 4.5%, implying that we're still in ‘tight' territory, but not immensely so.
Other aspects of the HLFS are also consistent with a tight labour market. The underutilisation rate (which includes underemployed workers and potential jobseekers) fell from 11.0% to 10.4% in the September quarter, its lowest level since June 2008. The decline was largely due to people shifting from part-time to full-time work. This has actually been a long-running trend, and the share of part-time workers is now at its lowest since 1990.
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