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Weaker than expected jobs data in December raises rate cut prospects

Thursday 7th February 2019

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Fewer people had jobs in the December quarter and wage inflation remained tepid, something that could increase the likelihood of a rate cut in New Zealand. 

The seasonally adjusted unemployment rate rose to 4.3 percent in the three months ended Dec. 31, from a revised 4 percent in the September quarter, Statistics New Zealand said in its household labour force survey. The revised September quarter number was still the lowest in 10 years.

Economists surveyed by Bloomberg had tipped the unemployment rate to rise to 4.1 percent. 

The New Zealand dollar fell more than half a cent to 67.72 US cents from 68.28 cents just ahead of the data. 

The unemployment rate for men rose to 4.4 percent from 3.9 percent while for women it rose to 4.2 percent from 4 percent. The December quarter marked the first time the rate was lower for women than men in nearly nine years.

The employment rate was 67.8 in the December quarter versus 68.2 percent in the September quarter. 

The number of employed people rose 0.1 percent in the quarter to 2.66 million and was 2.3 percent higher than a year earlier.

Wage inflation, meanwhile, remained tepid.

According to Statistics NZ, private sector wage inflation – including overtime - rose 0.5 percent in the quarter for a 2 percent annual increase. Economists had expected a lift of 0.6 percent.

Public sector wage inflation was up 0.7 percent in the quarter for a 1.7 percent annual gain.  Across both sectors, wage inflation rose a quarterly 0.5 percent and an annual 1.9 percent.

The annual lift in wage inflation was in line with the 1.9 percent lift in the annual consumers price index in the December quarter.

A record flow of migrants over the past several years has helped keep a lid on wage inflation even as the labour market has tightened.

The ongoing subdued wage inflation picture and the weaker-than-expected jobs numbers will likely mean the Reserve Bank is even more cautious at next week's review. It will likely reiterate the next move in interest rates could be up or down and markets may move to price in a greater chance of a rate cut. 

New Zealand’s central bank now has the additional goal of "supporting maximum levels of sustainable employment within the economy" to the existing goal of price stability.

Today's figures show the participation rate at 70.9 percent in the December quarter, down 0.1 percentage points versus the September quarter and flat on the year. Economists had expected a participation rate of 71.1 percent, according to the Bloomberg poll.

The under-utilisation rate, which measures the country's potential labour supply and unmet need for work, rose 0.7 percentage points to 12.1 percent.

Total actual hours worked fell 2 percent in the quarter to 87.5 million and were down 0.4 percent on the year.

The quarterly employment survey, also released today, showed private sector ordinary time average hourly earnings rose 1 percent to $29.66 in the December quarter and were 3.7 percent higher than a year earlier. Public sector ordinary time wages rose 0.6 percent to $39.54 in the December quarter and lifted 1.8 percent on the year.

“In the December quarter, the nurses’ pay settlement, which came into effect in August 2018, affected LCI and QES public sector wage and earnings measures. Annual wage inflation reflected the remaining two-thirds of the settlement in the latest quarter, said labour market and household statistics senior manager Jason Attewell. 


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