NZ: Labour Market Conditions

January 31, 2017 03:45 CST

Consensus Actual Previous
Employment Change (Q/Q) 0.7% 0.8% 1.4%
Unemployment Rate 4.9% 5.2% 4.9%
Employment Change (Y/Y) 5.8% 6.2%
LCI (Q/Q) 0.4% 0.4%
LCI (Y/Y) 1.6% 1.6%

New Zealand labour market statistics for the three months to December showed healthy conditions, with solid growth in employment and a big increase in the participation rate. Officials also noted that there is no evidence that a major earthquake that hit the Wellington area in November had any significant effect on labour market conditions.

Employment rose 0.8 percent quarter-on-quarter to 2,510,000 persons in the three months to December, down from 1.4 percent growth in the three months to September but just above the consensus forecast of 0.7 percent. The increase in headline employment in the quarter was driven by full-time employment, up 1.6 percent, with part-time employment falling by 2.2 percent. Growth in employment has now exceeded growth in the working-age population for five consecutive quarters.

Year-on-year growth in the seasonally adjusted employment series was 5.8 percent in the three months to December, compared with 6.2 percent in the three months to September. Year-on-year growth rates in employment are currently impacted by a changes to survey methodology introduced last year designed to improve identification of self-employed workers.

New Zealand's unemployment rate rose to 5.2 percent in the three months to December from 4.9 percent in the three months to September. This increase in unemployment, however, largely reflects a higher labour force participation rate, which increased from 70.1 percent in the three months to September to a new record high of 70.5 percent in the three months to December.

New Zealand's labour cost index rose by 0.4 percent in the three months to December, unchanged from the rate recorded in the three months to September. Year-on-year growth in this index was also unchanged at 1.6 percent. This series has consistently grown at a steady rate over the last five years.

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.