NZ: Labour Market Conditions

Tue Aug 01 17:45:00 CDT 2017

Consensus Actual Previous
Employment Change (Q/Q) 0.7% -0.2% 1.2%
Unemployment Rate 4.9% 4.8% 4.9%
Employment Change (Y/Y) 3.1% 5.7%
LCI (Q/Q) 0.4% 0.4%
LCI (Y/Y) 1.6% 1.5%

New Zealand labour market statistics for the three months to June showed weaker growth in employment and a small drop in the unemployment rate. Wage growth remains subdued, suggesting that conditions in the labour market are unlikely to drive any change in policy settings in the near-term. The Reserve Bank of New Zealand's next policy meeting is scheduled to take place next week. Officials have pledged to keep policy accommodative for "a considerable period" while also acknowledging that adjustments may be required.

The number of employed persons fell 0.2 percent (seasonally adjusted) on the quarter in the three months to June, weaker than the 1.2 percent growth recorded in the three months to March and well below the consensus forecast of 0.7 percent. Employment rose 3.1 percent on the year, though year-on-year growth rates are currently impacted by a change to the survey methodology introduced last year designed to improve identification of self-employed workers.

Weaker employment growth in the three months to June has been accompanied by a small decline in the unemployment rate from 4.9 percent the previous quarter to 4.8 percent. This reflects a fall in the labour force participation rate from 70.6 percent to 70.0 percent.

New Zealand's labour cost index for the private sector rose by 0.4 percent in the three months to June, unchanged from the three months to March. Year-on-year growth in this index ticked higher from 1.5 percent to 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.