NZ: Labour Market Conditions


Tue May 01 17:45:00 CDT 2018

Consensus Actual Previous Revised
Employment Change (Q/Q) 0.6% 0.6% 0.5% 0.4%
Unemployment Rate 4.5% 4.4% 4.5%
Employment Change (Y/Y) 3.1% 3.7%
LCI (Q/Q) 0.3% 0.4%
LCI (Y/Y) 1.9% 1.9%

Highlights
New Zealand labour market statistics for the three months to March showed steady growth in employment and a drop in the unemployment rate to 4.4 percent, its lowest level since late 2008. Wage growth remained steady over this period.

The number of employed persons grew by 0.6 percent (seasonally adjusted) on the quarter in the three months to March, up from an increase of 0.4 percent recorded in the three months to December and in line with the consensus forecast. Employment rose 3.1 percent on the year, slowing from 3.7 percent in the three months to December.

New Zealand's unemployment rate fell for the fifth consecutive quarter from 4.5 percent in the three months to December to 4.4 percent in the three months to March, with other measures of spare capacity in the labour market also indicating tight conditions. The participation rate fell from 71.0 percent in the three months to December to 70.8 percent in the three months to March but remains close to recored highs seen mid-2017.

The labour cost index for the private sector rose by 0.3 percent in the three months to March, down from 0.4 percent in the three months to December. Year-on-year growth in this index was steady at 1.9 percent, the fastest growth since 2012.

Although today's data shows strong conditions in New Zealand's labour market, data published last month indicated that price pressures weakened early in the year, with headline inflation falling from 1.6 percent in the three months to December to 1.1 percent in the three months to March. This suggests the Reserve Bank of New Zealand is likely to keep policy settings on hold at its policy meeting scheduled for next week.

Definition
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.

Description
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.