Interest rates likely to hold, says economist
The rate of unemployment in New Zealand has risen to 4%, Statistics New Zealand has announced.
The ‘underutilisation rate’, which measures spare capacity in the labour market, increased to 10.7%, up from 10.4%.
Ahead of the official result, ASB forecast unemployment to rise to 4.3%, while Kiwibank had forecast 4.2%.
Released on Wednesday, Labour Market Statistics for the December 2023 quarter shows the official unemployment rate rose from 3.9% the previous quarter.
A measure of people actively seeking and available for work, it marks the third rise in unemployment after it rose to 3.6% in the June quarter, following two quarters at 3.4%.
The number of unemployed people was 122,000, an increase of 3,000 people. For women, the unemployment rate was higher than that of men at 4.3%, up from 4.1% the previous quarter. For men, it was 3.7%, down from 3.8%.
Statistics New Zealand work and wellbeing statistics senior manager Becky Collett said that following recent historic lows, unemployment rates had “returned to 2019 levels”.
"Low unemployment formed part of the unique economic period from 2021 to 2022, as restricted borders limited increases to labour supply and labour demand remained high,” she said.
Wage cost inflation, as measured by the Labour Cost Index, showed salary and wage rates increased 4.3% in the year to the December 2023 quarter, representing no change from the previous three quarters. Average ordinary time hourly earnings rose by 6.9% over the year to $40.84, and average weekly earnings for full-time equivalent employees increased by 6.1% over the year, to $1,588, Statistics NZ said.
Unemployment forecasts slightly higher than 4%
ASB economists said in an Economic Weekly report published earlier this week that they expected further signs that labour pressures were easing, driven by migration and greater hiring caution during a period of economic weakness.
ASB chief economist Nick Tuffley (pictured above) told NZ Adviser earlier on Wednesday morning that the bank had forecast unemployment to rise to 4.3%, slightly above the Reserve Bank forecast of 4.2%.
Inflation fell below 5% to 4.7% over the December 2023 quarter, which Tuffley acknowledged that although was heading in the right direction, was still considerably higher than the Reserve Bank’s 1% to 3% target band.
Non-tradables inflation came in stronger than anticipated and has just started to come down, but still has further to fall, he said. Noting that wage costs are a driver of domestic inflation, Tuffley said that ASB had forecast annual wages growth, for which one of the measures is the labour cost index, to be 3.6% for the private sector (an adjusted figure which assumes no change in productivity or responsibility), down from 4.1%.
The Reserve Bank’s decision to keep the official cash rate on hold for a period of time had already taken into account some softening in the labour market, he said.
Will interest rates be affected?
In response to whether Wednesday’s unemployment rate was likely to influence the Reserve Bank’s upcoming decision on the official cash rate, Tuffley said that it was still too early to consider that inflation is under control. It is “extremely likely” that interest rates will remain on hold on February 28, he said.
“If we see signs that the labour market is softening more swiftly than the Reserve Bank has been forecasting, that’s when they may get more confidence that inflation will fall a bit quicker,” Tuffley said.
ASB Bank is forecasting rate cuts from August this year, which Tuffley said was contingent on inflation moving below 3% before the end of 2024.
“There should be greater confidence that [cuts] will happen in the second part of this year, but we’re still talking at least 6 months before interest rates start falling,” he said.
Following the result, Kiwibank economists said that while employment was stronger than expected, it is softening. There are clear signs that existing rate hikes are reducing household demand and hurting business, they said.
"The labour market stats lag activity in the economy, as employers hold onto employees for as long as they can before downsizing. And we are hearing oif businesses downsizing as the economy cools. The data will soften from here," Kiwibank economists said.
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