Household Labour Force Survey (Q4 2001)
Data Flash (New Zealand)
* Today's HLFS indicates that the demand for labour continued to rise in Q4 albeit not at the breakneck pace indicated by the less comprehensive QES). This outcome is consistent with our view that Q4 GDP growth will print in the region of 1.0% qoq, but with a smaller contribution stemming from labour productivity and a greater contribution from increased labour input than we thought earlier.
* As the chart overleaf illustrates, the employment outcome was stronger than suggested by recent trends in the ANZ job ads series. The next instalment of the job ads data is due on 13 February - a strong rebound in advertising (as seen in Australia this week) can not be ruled out and would be more consistent with employment growth at current levels. However, our central expectation is that employment growth will moderate over coming months as firms refocus on lifting poor levels of labour productivity (see chart below).
* With demand indicators running ahead of the RBNZ November MPS projections, the sharp increase in labour force participation - which drove the first rise in the unemployment rate since Q1 2000 - will have been welcomed by the Bank. The apparent modest easing in labour market tightness ties in with recent falls in the NZIER's measure of skilled labour shortages and suggests that at present the productive capacity of the economy is growing at a rate sufficient to support current levels of demand without generating additional pressures on inflation. The recent moderation in wage growth to around the 0.7% qoq mark will be a source of additional and corroborative comfort to the Bank.
* That said, in absolute terms, the labour market still remains tight and most indicators suggest that the economy is operating above its sustainable rate of capacity utilisation. Therefore, the Bank will continue to be weary of pressures on inflation stemming from the labour market. The Bank's willingness to forego an early beginning to the tightening cycle - earlier than the August rate hike we foresee at present - will be tested should significant evidence emerge that medium-term inflation pressures are likely to rise. A more rapid than expected global economic recovery or poor local inflation data could trigger an earlier rate hike, or a more aggressive hike than the 25bps we have pencilled in for August.