NZ: Labour Market Conditions

Tue May 05 17:45:00 CDT 2015

Consensus Actual Previous
Unemployment Rate 5.5% 5.8%
Employment Change (Q/Q) 0.8% 0.7%
Q/Q % change 0.4% 0.3% 0.5%
Yr/Yr % change 1.7% 1.8%

March quarter unemployment rate remained at 5.8 percent while the labour force participation rate reached an all-time high of 69.6 percent. Over the year to the latest quarter, the number of people employed increased 74,000 while the number of people unemployed fell 1,000, as measured by the Household Labour Force Survey.

Strong employment growth over the year occurred in Auckland and Canterbury. The employment rate was unchanged, at 65.5 percent. While the rate for men reached its highest level since the December 2008 quarter, the female employment rate was down slightly from last quarter's record high.

Annual wage inflation, as measured by the labour cost index, was steady, at 1.7 percent, while consumer price inflation remained low. Average hourly earnings, as measured by the Quarterly Employment Survey, increased 2.1 percent for the year, the lowest increase since the year to the June 2013 quarter.

The Labour Cost Index (LCI) measures movements in base salary and ordinary time wage rates and overtime wage rates. The non-wage component measures cost changes including annual leave and statutory holidays; superannuation; ACC employer premiums; medical insurance; motor vehicles available for private use low interest loans. The LCI is a measure of the extent to which changes in businesses' input costs put pressure on the output prices they charge for goods and services.

As a measure of labour cost, the LCI helps the Reserve Bank of New Zealand measure inflation. The RBNZ, with an inflation target range of 1 percent to 3 percent uses this index in addition to other price indices to measure possible pressures in consumer prices.

RBNZ officials are always on the lookout for the prospects of inflationary pressures. Wage pressures tend to percolate when economic activity is booming and the demand for labor is rising rapidly. During economic downturns, wage pressures tend to be subdued because labor demand is down. By tracking labor costs, investors can gain a sense of whether businesses will feel the need to raise prices. If wage inflation threatens, it's a good bet that interest rates will rise, bond and stock prices will fall.