Wednesday, November 4, 2015

NZ Labour market data supports December rate cut

Ask me what New Zealand data is prone to the most surprise and I will always answer “the labour market”.  Today’s release of September quarter Household Labour Force Survey (HLFS) data did not disappoint.  The unemployment rate came in bang on expectations at 6.0%, but for all the wrong reasons.

The rise in the unemployment rate from 5.9% in June was MEANT to be the result of lower growth in employment offset by faster growth in the supply of labour.  Instead it was the combination of a 0.4% fall in employment, offset by a decline in the labour participation rate (and therefore a decline in the labour force).  The participation rate fell from 69.3% in June to 68.6% in September.

What should we read into this result?  For a start the number that’s hardest to believe is the 0.7 percentage point decline in the participation rate given the strong population growth we are experiencing through net migration.  Furthermore, we’re not convinced that employment actually did fall over the quarter, though some of the surprise is mitigated by the fact that the decline came through in part-time employment. That suggests to me we will more than likely see some degree of bounce-back next quarter.

The annual rate of employment growth slowed to 1.5% which is probably more believable, although we thought it would be early next year before jobs growth slowed to that extent.  Jobs growth in the Quarterly Employment Survey came in at 1.7% for the year which does add some corroboration to the result.

Wages data added to the soft tone with the private sector Labour Cost Index up 0.4% over the quarter for an annual increase of 1.7%, slightly lower than we were expecting.

It could well be that we are in for another bout of volatility in the HLFS.  While that’s not particularly helpful, we do see today’s result as consistent with the view that growth in the economy has slowed recently and that there’s room for a further rate cut in December.