Jobs report: We need time to tell

Unlike MAFS: we’re not wedded at first sight of today’s jobs report. We need time to tell.

Key Points

• A surprise swoon in the unemployment rate to 3.9% - an 11-year low – shows the market remains a bright spot in the NZ economy.

• At 1.7% yoy employment growth in the June quarter was better than expected, and the number of people unemployed fell. Kiwis remained engaged, with a steady participation rate. And the decline in unemployed people saw the unemployment rate tumble to 3.9%, from 4.2%.

• The chunky $1.20/hr hike to the adult minimum wage was an unsurprising driver of wage growth in the quarter. The private sector LCI was up 2.2% yoy, well ahead of general inflation over Q2 (1.7%yoy).

• The labour market stats are what we call a lagging indicator. They take a while to turn. And the strength in the numbers does not reflect the pessimism in business surveys.

• The report won’t add a great deal to the RBNZ deliberations this week. We believe the RBNZ will deliver a 25bp cut to 1.25%. And the RB will continue to cut to 0.75% in this cycle.

• Female participation continues to climb, even in the Kiwibank economics team.

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The labour market report was undoubtedly strong. The pick up in employment was impressive, but so was the drop in unemployment. The participation rate was unchanged, and that meant the unemployment rate tumbled to just 3.9%. The Kiwi unemployment rate is now at the lowest level since 2007. That’s great news. The other good news in the report was the strong lift in wages growth. It appears firms held off last quarter, but paid out this quarter. The impact of the higher minimum wage has now come through. The labour market is decidedly tight at present. Other metrics of slack in the labour market, such as the underutilisation rate fell too. The underutilisation rate came in at 11%, again an 11-year low.

But it is old data reflecting an economy of yesterday. Labour market statistics are lagging, by about 9 months. The strong growth we experienced last year has slowed, and the forward-looking indicators have deteriorated – esp. business confidence.

All eyes now turn to the RBNZ on Wednesday for the latest MPS. A 25bp cut to the OCR to 1.25% seems a foregone conclusion. More importantly is what the Bank does next. Given heightened global uncertainties and a deteriorating outlook domestically we now expect the RBNZ will be moved to cut the OCR to below 1% at the start of 2020.

Today two guest writers contributed to our labour market report. Sofia Angelova Bray and Aishi Jain of Westlake Girls High School are economists for the day here at Kiwibank, and we appreciate their contribution.

To read more, please click here or open the pdf below.

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