NZ labour market reasonably robust, won't rattle central bank, economists conclude

Wednesday 4th May 2016

New Zealand’s labour market is in reasonable health, despite a higher jobless rate in the first quarter, with employment growing faster than the total working-age population, economists say.

Seasonally adjusted employment grew by 1.2 percent, or 28,000, in the first quarter to about 2.4 million people, or 65.1 percent of the working-age population, which climbed by 0.8 percent, or 29,000, to about 3.69 million in that time, government figures show. Unemployment increased by 7.4 percent, or 10,000 people, to 144,000, or 5.7 percent of the labour force.

While employment is growing, wage inflation as measured by the labour cost index remains subdued, rising at 0.4 percent in the quarter for an annual rate of 1.6 percent. That tallies with the Reserve Bank’s assessment that record migration is not only boosting economic growth but also increasing the labour force, keeping a lid on wage inflation. The central bank is expected to cut the official cash rate to a record low 2 percent in June, to stoke annual inflation currently running at just 0.4 percent, below its target range.

"Overall today's data suggests the labour market started 2016 in good health," said Anne Boniface, senior economist at Westpac Banking Corp. "There appears to be little to worry the RBNZ on the inflation front in today's data and, at the margin, they may feel slightly more comfortable about their inflation outlook."

The participation rate rose to 69 percent from 68.5 percent.

"Overall, the various labour market surveys suggest that wage pressures are likely to remain subdued," said Nick Tuffley, chief economist at ASB Bank. "If the participation rate remains around these levels then spare capacity in the labour market is likely to continue to weigh on wage growth."

Auckland, the biggest beneficiary of immigration and a city grappling with surging property prices, recorded a 2.9 percent increase in employment and accounted for 49 percent of overall New Zealand employment growth in the 12 months ended March 31, the government statistician said. The construction industry recorded the biggest gain across sector groups, with a 17,500 increase in the latest year. Much of the industry's expansion was in Auckland where forecast growth is expected to require an estimated 32,000 extra jobs through to a likely peak in 2018.

BusinessDesk.co.nz

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