Unemployment jumps to 4.6%
New Zealand’s unemployment rate jumped to 4.6% for the June quarter, rising from 4.4% from the quarter before and 3.6% a year ago, according to Stats NZ.
However, Westpac’s senior economist said it was “no smoking gun” for a hike to the official cash rate, which will be decided by the Reserve Bank of New Zealand next week.
Kelly Eckhold (pictured above), chief economist at Westpac, said that while labour market data did show that the labour market is easing, it’s not easing any faster than forecast. “Indeed, the key unemployment rate of 4.6% was a touch lower than what we actually forecast but bang in line of what the Reserve Bank expected back in May,” Eckhold said.
The forecast comes as other banks call for a rate cut.
Inside the unemployment data
Over the year, unemployment rose by 33,000 to 143,000, according to the data.
Stats NZ labour market manager Deb Brunning said unemployment had been increasing since 2022, leaving the current quarter’s unemployment rate the highest since March 2021.
“Recent rises in unemployment align with other economic indicators, including an increasing number of benefit recipients, a decreasing number of job vacancies, and declining GDP (gross domestic product) per capita,” Brunning said.
Meanwhile, the underutilisation rate, a broad measure of untapped labour market capacity that includes unemployed and underemployed people along with the potential labour force, was 11.8% in the June 2024 quarter.
This was up from 11.2% last quarter and 9.9% a year ago. Over the year, the total number of underutilised people rose by 66,000 to 377,000.
Public sector wage inflation reaches new high
On the wage front, Eckhold said that wages are yet to show definitive signs of easing quickly.
“To be fair, there’s a hefty public sector component to these numbers,” he said. “It certainly looks like past settlements in the health sector are still following through.”
Labour cost index (LCI) wage inflation in the public sector rose to a series high of 6.9% annually. Public sector average ordinary time hourly earnings in the Quarterly Employment Survey (QES) increased 7.9% to $49.56.
“The effects of pay increases for some health workers, along with school therapists and early-childhood education staff, have all come through in public sector wage growth this quarter, in addition to other settlements seen over the year,” Brunning said.
Average hourly earnings being up 5.2% annually covers increasing wages in the education and training, and health care and social assistance industries from 2023 to the March 2024 quarter in more detail.
Overall, annual wage cost inflation was 4.3% in the June 2024 quarter, while average ordinary time hourly earnings increased 5.0% annually to $41.52.
In the end, Eckhold said it doesn’t really matter. “Wage costs are an important determinant of services sector pricing and it’s pressure in that services sector that’s really holding things back on the inflation front right now,” he said.
The verdict
Overall, there were “no real surprises” for the RBNZ in the latest surveys, according to Westpac.
That in itself may be a disappointment for financial markets who may have already priced in a cut of the official cash rate.
“We think the Reserve Bank is going to leave open the possibility that we are going to see those two 25-basis-point interest rate cuts in October and November that we have in the forecast,” Eckhold said after the bank moved forward its official forecast this week.
“What’s going to be particularly interesting to see is what is the Reserve Bank’s appetite for interest rate cuts through 2025. Does tempering mean they are going to cut deep in 2025, or will they look to drag the change and reduce interest rates relatively slowly?”
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