Unemployment edges up
The New Zealand labour market displayed a mix of declines and steady wage growth in the March quarter, according to Westpac.
The unemployment rate saw a slight increase to 4.3% from the previous 4%, closely aligning with the bank’s forecast of 4.2% but showing a more nuanced shift than expected. Employment, meanwhile, decreased by 0.2% against a forecasted increase, challenging earlier predictions of growth.
“The March quarter labour market surveys were something of a mixed bag, not easily lending themselves to a single interpretation,” said Michael Gordon (pictured above), Westpac NZ’s senior economist.
“The bottom line remains that the jobs market continues to soften as the economy cools, but it’s less clear whether wage pressures are easing to the degree that the Reserve Bank would like to see.”
Wage growth sustained by government pay agreements
Despite the softening employment numbers, wage increases have been buoyed by government pay agreements, maintaining an upward trend in the overall wage growth. The Labour Cost Index (LCI) increased by 0.8% for the private sector and 0.9% for all sectors, slightly exceeding Westpac’s estimates.
“Government pay agreements continue to filter through into these measures," Gordon said.
Labour participation hits two-year low
Adding to the complexity of the current labour market, the labour force participation rate dropped to 71.5%, the lowest in nearly two years. This decline in participation contributes to the contrasting data presented by different employment surveys and complicates the overall interpretation of labour dynamics.
Inconsistent data from various surveys
Gordon pointed out inconsistencies between the Household Labour Force Survey (HLFS) and the Monthly Employment Indicator (MEI). While the MEI suggested steady job growth, the HLFS recorded a drop in employment, suggesting a divergence in data sources.
“We’re more inclined to believe the MEI result – since it’s drawn from tax data, it is close to a complete record,” Gordon said. “Even so, the message from the MEI has been that jobs are no longer rising fast enough to match population growth.”
Implications for future wage trends and RBNZ policy
Looking forward, the persistence of government pay agreements may continue to support wage growth, but a more significant slowdown is anticipated.
“To the extent that the legacy of government pay agreements is continuing to boost the overall figures, we can reasonably expect a more meaningful slowdown in wage growth over the course of this year,” Gordon said.
This evolving wage trend will be crucial for RBNZ as it aims to align with a 2% inflation target amidst ongoing domestic inflation pressures evident in the March quarter CPI report.
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