NZ unemployment rate falls to 4.9% in March; Jobs growth exceeds boost in working age population; economists don't see any immediate interest rate reaction from the RBNZ

New Zealand’s unemployment rate fell to 4.9% in the March quarter, as the number of jobs created beat a rise in the pool of people in and searching for work and growth in the working age population.

The Kiwi dollar rose by about US0.3c to over US69.5c on the news.

However, the underlying employment figures did give some cause for concern, with a rise in the number of 15-19 year olds not in education, employment or training rising to its highest level in six years.

Regional unemployment was up in the Bay of Plenty, Taranaki and Canterbury compared to a year earlier.

Other Stats NZ labour market figures showed annual wage inflation held steady at 1.6% during the quarter. Private sector wages though, at 1.5% annual growth, had their lowest rise since the June 2010 quarter, with the headline figure boosted by a 1.7% rise in public sector wages.

The unemployment figure should please the Reserve Bank – its February Monetary Policy Statement (MPS) had forecast the rate at 4.9% at this point. The Bank has been criticised recently as CPI inflation came in above its expectations, although this had been boosted by a number of variables Governor Graeme Wheeler has noted he could ‘look through’.

Prime Minister Bill English welcomed the drop in the unemployment rate. “I think it could go lower than that, but we have to keep creating the jobs to do it,” he told media in Wellington. While it was hard for the government to directly influence the rate, English said businesses were investing more in training people for work.

Labour Party finance spokesman Grant Robertson focussed on the Stats NZ wage figures, noting the 1.6% annual rise was less than the 2.2% CPI inflation in the year to March. He said the 132,000 unemployed number was up by 31,000 since National took took office. The number of people unemployed for six months or more had trebled over that time to 43,200, he added.

Economists react

ASB chief economist Nick Tuffley said the employment data continued to paint a robust picture of the NZ labour market, with employment and participation growing and those unable to secure a job declining. 

“However, employment growth still does not appear strong enough to push wages significantly higher across the economy in general.  Wage pressures remain largely confined to tourism-related sectors and construction.  Continued record high levels of migration and a strong willingness to work amongst those of working age are keeping overall wage pressures depressed.

“We continue to expect the RBNZ to hold the [Official Cash Rate] at 1.75% at next week’s MPS, with the underlying data showing the labour market is still robust.  But, just as there are no grounds to cut the OCR, equally there is no reason to expect hastened OCR increases.  We expect the RBNZ to be on hold for an extended period, to late 2018.”

ANZ senior economist Philip Borkin said after “surprises” in the fourth quarter figures from 2016, the latest data pointed to a labour market that is “back on script and more consistent with anecdote”.

“…In other words, strong, with both the unemployment and under utilisation rates trending lower, and pointing to a market that is tightening. At this stage nominal wage growth remains benign, although we do believe conditions are set to change on that front too, with higher inflation, skill shortages, solid business sector profitability and the likes of the equal pay hospice workers’ settlement eventually providing a positive impulse.

“In saying that, we suspect the direct monetary policy implications from today’s figures are limited. While a tighter labour market does add to the case that the next move in the OCR will eventually be up, the RBNZ is going to want to see clear evidence that wage inflation is lifting (just like with broader measures of core inflation) before it reacts, and we suspect that evidence is going to appear only gradually.” 

The employment figures come at a busy time politically, ahead of the government’s 25 May Budget and as election year enters full swing. Prime Minister Bill English is set to deliver a key set-piece speech later on Wednesday touching on the economy.

They also come as political parties on all parts of the spectrum are debating New Zealand’s population and immigration settings, and the effects these have on employment prospects. The Labour Party has also announced it will make the Reserve Bank target employment levels in the economy with its monetary policy tools if it wins the 23 September election.

Unemployment down, employment up

The unemployment rate fell to 4.9% from 5.2% in the December quarter, Stats NZ figures showed. Labour market statistics put the seasonally adjusted number of unemployed people at 132,000. This was down 0.8% from the same time a year ago.

Meanwhile, the number of employed people was estimated at 2,539,000 in the March quarter, up 5.7% from a year ago. From the December quarter, the number of employed people rose 1.2%, or by 29,000 people.

Over the same time since December, New Zealand’s labour force – those in work (employed) and those actively looking for it (unemployed) – grew by 23,000 people. The working age population grew by a seasonally adjusted 27,000 to 3,782,000. The labour force participation rate hit a new record of 70.6.

Underemployed and NEETs

Stats NZ said its under utilisation measure – the unemployed, underemployed, unavailable and available jobseekers – fell in the March quarter from December. The unadjusted under utilisation rate fell 0.3 points to 12.5%, representing 8,200 fewer people being underutilised. However, Stats NZ did note that the results were not statistically significant.

There was also a fall in the number of youth NEETs (not in employment, education or training). This measure of 15-24 year olds fell by 0.7 points to 12.8% of that age group (down by 4,000 people).

More specifically, the 20-24 year old NEET rate was 14.9%, down 2.2 points from December (8,000 fewer). This was led by 3,000 fewer ‘unemployed and not in education’, and 6,000 fewer who were ‘not in the labour force, not caregiving’.

In the 15-19 year old category, the NEET rate was 10.5%, up 0.9 points. This was the highest NEET rate for the age bracket since the March 2011 quarter, Stats NZ said. Of the 3,000 more people in the age group who were NEET in the March quarter, 2,000 were people ‘unemployed and not in education’, and 2,000 were ‘not in the labour force, not caregiving’.