NZ: Labour Market Conditions

Tue Aug 04 17:45:00 CDT 2015

Consensus Previous Actual
Unemployment Rate 5.8% 5.8%
LCI Employment Change (Q/Q) 0.7% 0.7%
Q/Q % change 0.4% 0.3% %
Q/Q % change 0.5% 0.3% 0.3%
LCI Employment Change (Q/Q) 0.7% 0.8%
Yr/Yr % change 1.7% 3.0%

The unemployment rate increased to 5.9 percent in the June 2015 quarter (up from 5.8 percent). At the same time, there were 7,000 more people employed over the quarter (up 0.3 percent). Even though employment grew over the quarter, population growth was greater, which resulted in a lower overall employment rate.

This was the eleventh consecutive quarter of employment growth, making it the second-longest period of growth since the period between 1992 and 1996. Over the year to June 2015, employment growth was still fairly strong (at 3 percent) with 69,000 more people employed. The manufacturing industry showed the strongest annual employment growth. This quarter was the first time since the December 2013 quarter that the construction industry has not been the largest contributor to annual growth in employment.

The vast majority of growth was in Auckland (29,600 people), where the annual employment growth was driven by retail trade and accommodation, followed by construction. Bay of Plenty had the second-highest employment growth, with 11,000 more people being employed over the year.

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.