As is usual with the plethora of data that comes with quarterly labour market releases, there was something for everyone in today’s data. That is best exemplified by the seemingly contradictory strong rise in employment, combined with a rise in the unemployment rate. The conclusion is, however, that the New Zealand labour market is in pretty good shape.
Most interest today was in the unemployment rate. We made the point at the release of December quarter data that the unemployment rate can be volatile and that while we didn’t believe the sharp fall to 5.3% in December (today revised up to 5.4%), neither did we believe the September reading of 6.0%; somewhere in the middle was probably the more accurate picture. While the March result of 5.7% was higher than average market expectations of 5.5%, it is probably closer to the true rate than either of the two previous estimates.
It’s also important not to take the rise in the unemployment rate as a sign of labour market weakness. Indeed the underlying tone of the data was strong. Employment rose 1.2% in the quarter a result that took the annual rate of growth back up to 2.0% from 1.4% in the year to December. Full-time employment was up 1.0% in the quarter. That’s undeniably non-shabby.
The rise in the unemployment rate was the result of growth in the workforce combined with an increase in the participation rate which rose to 69.0, reversing some of the decline of the last few quarters. That saw the labour force rise a spectacular 1.5% in the quarter. While that resulted in a move higher in the unemployment rate it is, at the same time, a sign of a healthy well-functioning labour market.
It’s the recent phenomenon of solid employment growth being roughly match with growth in the supply of labour that has kept wage pressure and with that, underlying inflationary pressures, in check. In fact the Labour Cost Index (for private sector ordinary time wage and sales earners) has been trending lower recently. However the annual rate of increase blipped higher in March to 1.8% from 1.6% in the year to December. That’s still lower than the level that would be consistent with 2% inflation, but it now appears to be heading in the right direction. The question is whether it is sustained and only tome will answer that.
This result doesn't preclude further easing from the RBNZ but reinforces for us that whether they go or not will largely be determined by their level of (dis)comfort with the exchange rate. In that respect yesterday’s EXPECTED (at least by AMP Capital) rate cut in Australia could have a more meaningful bearing on decisions at the June MPS.