By Bernard Hickey
Slowing economic growth appeared to flow through into the jobs market in the June quarter as employment growth was slower than expected and the seasonally adjusted unemployment rate bounced to 5.9%. The latest data adds more fuel to calls for lower interes rates.
Statistics New Zealand has reported the unemployment rate rose to 5.9% in the June quarter from 5.8% in the March quarter after employment growth of 7,000 or 0.3% was weaker than expected and the labour force participation rate fell by 0.2% from record highs to 69.3%. The jobs growth was more than overwhelmed by an increase in the working age population of 24,000.
The figures reinforce a picture of slowing economic growth that would allow the Reserve Bank to cut the Official Cash Rate for a third time on September 10 to 2.75%. Most economists expect the OCR will be cut to 2.5% by early next year, but some think the Reserve Bank could cut it to 2% or even lower given very weak inflation and tumbling dairy prices.
“Even though employment grew over the quarter, population growth was greater, which resulted in a lower overall employment rate for New Zealand,” labour market and household statistics manager Diane Ramsay said.
Annual jobs growth in the year to the June quarter was 69,000 or 3.0%.
The vast majority of jobs growth was in Auckland (29,600 people), where the annual employment growth was driven by retail trade and accommodation, followed by construction, Statistics New Zealand said. Bay of Plenty had the second-highest employment growth, with 11,000 more people being employed over the year.
Average ordinary time hourly earnings rose 0.8% to NZ$29.01/hour in the June quarter and was up 2.8% from the same quarter a year ago.
The Quarterly Employment Survey measure of full time equivalent employee numbers on a seasonally adjusted basis fell 0.7% for the quarter to 1.45 million and was up 2.1% from the same quarter a year ago. In the June quarter this measure rose 1.6% for the quarter and was up 4.1% from a year ago. The QES measured of filled jobs fell 0.9% on a seasonally adjusted basis and weekly paid hours fell 0.6% on a seasonally adjusted basis in the quarter.
“These data reinforce our expectation that the RBNZ cuts the OCR at least two more times,” ASB Economist Chris Tennent Brown said.
“And if we are wrong abut the underlying strength in the labour market (and future employment growth is also weak), the risk is the RBNZ needs to ease further,” he said.
Westpac Economist Satish Ranchod said labour market conditions were softer than expected.
“Today’s data adds to the signs that the economy is losing momentum, and reinforces our expectation that the RBNZ will need to continue cutting the OCR over the coming months,” Ranchod said.
“The more reliable QES shows the dream run on jobs has turned,” said independent economist Shamubeel Eaqub.
ANZ Economist Mark Smith said the weak hours worked measure pointed to a second successively quarterly low GDP result.
“Wage inflation remained low, ensuring the risks around OCR settings are skewed downwards. We expect a further 25bp cut in September, with the risk of a further 25bp cut next March,” he said.
Economic Development Minister Steven Joyce was upbeat about the figures.
“It’s pleasing to see continuing job growth, despite some economic headwinds,” Joyce said.
“The economy continues to diversify and grow jobs in most regions over the past year despite sharply lower dairy prices and some international uncertainties,” he said.
Labour Finance spokesman Grant Robertson pointed to the 10,000 increase in unemployment in the June quarter from a year ago to 148,000.
“National seems content to let the economy drift along, despite economists openly raising the prospect of recession. From ‘rock star’ to recession in six months shows how much of a mirage the much-trumpeted growth figures have been.” Robertson said.
“National has squandered opportunities to support genuine regional economic growth by adding value to local industries and supporting the growth of new ones. John Key and Steven Joyce have simply been content to bask in the glory of high commodity prices and lean on the Canterbury re-build,” he said.
(Updated with more details, reaction)