The labour market bounced back strongly at the end of 2015. Employment rose +0.9% in the December quarter, coming back strongly from the surprise -0.5% dip in the September quarter. Annual employment growth came in at 1.4% for the calendar year.
The surprise came with a sharp fall in the unemployment rate from 6.0% in September to 5.3% in December. Despite another strong increase in the working age population, the participation rate recorded its third consecutive quarterly decline to 68.4, down from 68.7 in September and 69.5 at the start of 2015. The latest level is still high by historical and international standards – it’s just not as high as it was.
Wage inflation remained muted. In fact the annual rate of increase in private sector ordinary time labour costs continued its drift lower, coming in at 1.6% for the year.
This mix of data doesn’t make the Reserve Bank’s job any easier. This result along with the bounce back in GDP growth tells us the New Zealand economy ended 2015 in better shape than it started it, but with subdued domestic inflationary pressures.
Having lowered the OCR back to the historical low of 2.5%, we expect the Bank to hold fire on further rate cuts in the near term, but retain a bias to reduce interest rates further should conditions warrant.