NZ: Labour Market Conditions

Tue Feb 06 15:45:00 CST 2018

Actual Previous Consensus
Unemployment Rate 4.5% 4.6%
Employment Change (Q/Q) 0.5% 2.2% 0.3%
Employment Change (Y/Y) 3.7% 4.2%
LCI (Q/Q) 0.4% 0.7%
LCI (Y/Y) 1.9% 1.9%

New Zealand labour market statistics for the three months to December showed moderate growth in employment and a drop in the unemployment rate to a nine-year low of 4.5 percent. Wage growth remained steady over this period.

The number of employed persons grew by 0.5 percent (seasonally adjusted) on the quarter in the three months to December, down from an increase of 2.2 percent recorded in the three months to September but stronger than the consensus forecast of 0.3 percent. Employment rose 3.7 percent on the year, slowing from 4.2 percent in the three months to September.

New Zealand's unemployment rate fell for the fourth consecutive quarter from 4.6 percent in the three months to September to 4.5 percent in the three months to December, its lowest level since 2008. After hitting a record high of 71.1 percent in the three months to September, the labour force participation rate fell slightly to 71.0 percent but continues to indicate robust conditions in the labour market.

The labour cost index for the private sector rose by 0.4 percent in the three months to December, down from 0.7 percent in the three months to September. Year-on-year growth in this index was steady at 1.9 percent, the fastest growth since 2012, with officials noting that pay rises for private-sector health-care workers again made a significant contribution to headline growth.

Although today's data shows strong conditions in New Zealand's labour market, data published last month indicated that price pressures remain subdued, with headline inflation falling from 1.9 percent in the three months to September to 1.6 percent in the three months to December. With inflation still relatively close to the mid-point of the Reserve Bank of New Zealand's target range of 1.0 percent to 3.0 percent, officials are likely to keep policy settings on hold at their policy meeting later in the week.

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.