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The Labour Market Is Softening, With The Worst To Come

* Today's employment report was stronger than expected, but is still softening. The unemployment rate has lifted from 3.9% to 4.0%, we thought it would be nearer 4.2% (consensus 4.3%), and is likely to push above 5% this year. The lift in unemployment is just taking longer to come through. The underutilisation rate also lifted over the quarter, rising to 10.7% from 10.4%. More people need more hours. But employers are not as keen.
* There is a VERY strong migration impact. The working age population rose the most ever recorded (back to 1986), and employment growth cant keep up.
* There are clear signs that the RBNZ's heavy handed hikes are inhibiting household demand, and hurting business. The labour market stats lag activity in the economy, as employers hold onto employees for as long as they can, before downsizing. And we hearing of businesses downsizing as the economy cools. The data will soften from here.

At face value, the report today reduces the chances of a here term rate cut by the RBNZ. Thoughts of cuts in May and August will likely push out to November. We're sticking with our call for cuts commencing in November.

It's not just about today's old data, that lags the economy. It's about momentum, and the outlook for employment into 2025. The economy is smaller than the RBNZ had forecast in November, and employment growth is likely to stall. The unemployment rate is forecast to break above 5% this year, as employers 'rightsize' their businesses. It is by RBNZ design. And we're likely to see a softening in wage pressure (and inflation).

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