June quarter New Zealand labour market data was weaker AND stronger than expected: weaker due to lower than expected employment growth but stronger with a bigger than expected fall in the unemployment rate. Wage growth also came in a tad stronger than expected.
Employment growth came in at 0.4% for the
quarter, lower than our expected 0.6%.
That result for the quarter put the annual rate of growth at 3.7% for
the year – still a pretty good result.
The unemployment rate fell to 5.6% over the quarter, lower than our
forecast of 5.8% and down from the revised March level of 5.9%. The bigger than expected decline in the
unemployment rate was courtesy of a fall in the participation rate.
Wage growth came in a tad stronger than
expected but after allowing for the recent increase in the minimum wage didn’t
signal any meaningful increase in wage inflation.
By itself this data suggests a prudent course
for monetary policy would be for interest rates to push on towards
neutral. But that would mean ignoring
another large fall in dairy prices overnight.
Prices fell another 8.5% in the latest auction, taking the cumulative
fall since February to 41%. While the NZD has moved lower, it has still not adjusted sufficiently given the fall in commodity prices.
We had expected dairy prices to be weaker
this year. This has been a factor in our
view that we have already passed the peak in quarterly GDP growth rates. But dairy prices have ended up being
considerably weaker than we expected which has shifted the risk to our growth
forecasts to the downside. At the very
least this justifies the RBNZ's signaling of a cup of tea to assess where to from
here. More on the growth and interest rate outlook soon.