NZ: Labour Market Conditions

Tue Nov 03 15:45:00 CST 2015

Consensus Actual Previous
Employment Change (Q/Q) 0.4% -0.4% 0.3%
Unemployment Rate 6.0% 6.0% 5.9%
LCI (Q/Q) 0.5% 0.4% 0.8%
Employment Change (Y/Y) 1.5% 3.0%
LCI (Y/Y) 1.6% 2.8%

The unemployment rate increased to 6.0 percent in the September 2015 quarter (up from 5.9 percent). At the same time, 11,000 fewer people were employed than in the June quarter. This was the first quarterly fall in employment in three years.

Until recently, the labour market has been keeping pace with New Zealand's population growth, but in the past three months this has changed. The third quarter also had the largest increase in the number of people outside the labour force since the March 2009 quarter. For the year to the September 2015 quarter, annual employment growth slowed to 1.5 percent, down from 3.0 percent in the year to June 2015.

Most of the growth was in construction with the vast majority centered in Auckland as construction growth there continued to outpace Canterbury. Auckland (11,500 people) and Bay of Plenty (8,100 people) were the two largest contributors to annual employment growth.

Annual wage inflation, as measured by the labour cost index (LCI), remained at 1.6 percent compared with annual consumer price inflation of 0.4 percent.

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.