The market is expected to cool down further over the course of the year
The labour market has loosened following a slowing economy and a growing population, according to a report by economists from Kiwibank.
Chief economist Jarrod Kerr (pictured left), senior economist Mary Jo Vergara (pictured centre), and economist Sabrina Delgado (pictured right) released a report analysing the labour market in New Zealand. It found that the unemployment rate had risen from 3.9% to 4%, breaking the nine-quarter streak of being below 4% and marking the highest rate seen since early 2021. However, the economists noted that this was still lower than the expected 4.2-4.3%.
“Similar themes to the last couple of quarters are in play. That is, the loosening in labour market conditions continues to be a story of a migration driven recovery in labour supply. But cracks are emerging,” the Kiwibank economists said.
While the population of people within the working age rose by 3%, the jobs growth rate was only at 2.4%, meaning that employment could not keep pace and will cause the unemployment rate to rise further in the coming year.
“There are clear signs that the RBNZ’s heavy handed hikes are inhibiting household demand and hurting business. The labour market stats lag activity in the economy, as employers hold on to employees for as long as they can before downsizing. And we are hearing of businesses downsizing as the economy cools,” the economists explained.
The private labour cost index rose by 1% with annual wage inflation going down to 3.9% from the 4.3% previously seen. Meanwhile, public sector wage growth grew to 5.7% with the average total hourly earnings within the education and healthcare industry rising to 14% and 10% respectively, following pay agreements.
With the growing supply in labour, there is a loosening seen in the market which is expected to shift in the coming months.
“There’s been a mindset shift among businesses, and employment intentions are weakening. There’s a strong correlation between employment intentions and actual employment growth. It’s only a matter of time before those weaker intentions translate into weaker growth. We expect employment growth to weaken further in the coming quarters,” said the economists.
The economists further believe that the unemployment rate will reach 5 to 5.5% at some point in 2024.
