The predictions come ahead of the first quarter checkpoint next Wednesday
Kiwibank has predicted the unemployment rate to remain unchanged at the beginning of 2023, ahead of the release of Stats NZ’s suite of labour market figures on Wednesday.
In Kiwibank’s latest publication, Jarrod Kerr (pictured above left), chief economist, and Mary Jo Vergara (pictured above right), economist, said it seemed “the labour market remains incredibly tight – for now at least.”
“We expect to see the unemployment rate remain unchanged at 3.4%, near record lows,” Kerr and Vergara said. “In fact, the unemployment rate has been bouncing at or near the record low rate of 3.2% for the last 18 months.”
The economists said firms continued to show an appetite for labour despite emerging signs of domestic demand slowing. And with the strong inflow of migrants over recent months, the labour supply is getting the much-needed boost to help resolve the staffing issues that have long plagued firms in the COVID era.
“Filled jobs data already published by StatsNZ suggest a solid bounce in employment growth in the March quarter,” they said. “We have pencilled in a 0.7% quarterly gain in employment, up from last quarter’s 0.1%.”
NZIER’s latest QSBO also showed that the search for labour was no longer the primary constraint for businesses, due to the easing of border restrictions and with the talent pool expanding.
“An uptick in employment growth reflects, in part at least, the return of work-ready migrants to fill vacancies,” the economists said.
Kiwibank is expecting the labour force participation rate, which is currently sitting at a record high of 71.7%, to slightly lift to 71.8%.
“The widespread availability of work, combined with a sharp rise in the cost of living, is likely to have attracted more workers to the labour force,” the economists said. “Again, the reopening of the border has led to a return to net migration inflows over the second half of 2022 – driven by a rise in non-NZ long-term arrivals. Many of these arrivals are work ready.”
Kiwibank also predicted a further lift in wage growth, driven by the pressure of strong employment demand and workers demanding cost-of-living catch ups.
“The private sector labour cost index, a measure of pure wage growth, is forecast to have risen around 1% in Q1, similar to the pace of growth seen last quarter,” the economists said. “Annual wage growth likely hit a new high of 4.6%. Expected wage growth still falls short of CPI inflation – coming in at 6.7%.
“However, workers have adjusted to the current high-inflation environment by working longer hours and shifting to higher paying jobs to boost incomes. Moreover, firms have had to squeeze more out of the existing workforce, with an increased use of overtime. As a result, average hourly earnings have shown far larger gains in recent quarters.”
Moving forward, the labour market is expected to slow this year along with the deteriorating economic outlook.
“The outlook for the economy is dimming,” Kerr and Vergara said. “And the moves by the RBNZ in aggressively hiking interest rates is slowing economic activity. Weakening expected activity and profitability questions how much gas labour demand has left in the tank.
“However, given the labour market tends to lag the broader economy, we are not expecting meaningful signs of a weakening labour market until the middle of the year.
“The unemployment rate is expected to lift from the middle of this year on its way to a 5-5.5% peak in 2024. Wage growth has yet to peak in the current cycle and will lag too. We are forecasting a peak in wage growth of around 5% in the first half of 2023 before easing as the strength of the labour market wanes.”
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