Partial jobs and wages data weaker than expected in June quarter; private sector wage inflation soft at 0.4% for qtr and 1.6% for year; economists see plenty of room for RBNZ to cut OCR next Thursday

By Bernard Hickey

Wages growth and one measure of jobs growth was softer than expected in the June quarter, reinforcing expectations the Reserve Bank will cut the Official Cash Rate again by 25 basis points next Thursday to try to get inflation back near its 2% mid-point target.

Statistics New Zealand reported Labour Cost Index (LCI) and Quarterly Employment Survey (QES) data for the June quarter that showed private sector labour costs rose 0.4% for the quarter and were up 1.6% from the same quarter a year ago. This was weaker than market expectations for labour cost growth of around 0.5%.

The QES measure of Full Time Employment rose 0.3% in the June quarter, which was less than the economists’ forecasts for growth of around 0.7%.

The labour force figures did not include the Household Labour Force Survey (HLFS) that include the more closely watched measures of employment growth and unemployment. Statistics NZ announced last week it had delayed the release of the HLFS for further checks on significant revisions.

“Wage inflation data were softer than ASB and the market expected in the June quarter,” said ASB Senior Economist Jane Turner.

“The softer annual rate of wage inflation is likely to weigh on the RBNZ’s projected inflation outlook and reinforce the need for at least two further OCR cuts,” Turner said, noting the weaker wage result could reflect weak inflation expectations.

ANZ Senior Economist Philip Borkin said the figures were a touch softer than it expected, with both modest growth in filled jobs and low wage inflation. He said they indicated the unemployment rate may actually have lifted in the June quarter.

“We still believe that the underlying trend in labour demand is strong. But in the face of strong labour supply growth as well (likely to be confirmed by the HLFS), total labour market spare capacity does not look like it is being absorbed quickly (even though anecdotes suggest the contrary for some sectors),” Borkin said.

“The slow absorption of spare capacity is reinforced by wage inflation figures, which remained modest,” he said, pointing out that more workers received no wage increases in the June quarter than the March quarter.

He said he was most surprised by a moderation of annual wage inflation in the construction sector to 2.0% in the June quarter from 2.2% in the March quarter.

“This is completely at odds with anecdote, and leaves us scratching our heads.”