NZ: Jobs growth slowing - AmpGFX

New Zealand employment growth disappointed expectations with a fall in jobs of 0.2%q/q in Q2, against a forecast rise of 0.7% while the annual growth slowed from a very strong 5.7%y/y to a still strong 3.1%y/y, points out Greg Gibbs, Analyst at Amplifying Global FX Capital.

Key Quotes

“However, the data were not as bad as it seemed, with losses concentrated in part-time jobs (-1.8%q/q), while full-time jobs rose (+0.7%q/q), and hours worked rose 1.0%q/q.”

“Nevertheless, hours worked still slowed from 6.6%y/y to 2.6%y/y in Q2, as the pace of employment growth cools from a supercharged 2015.”

“Surging immigration and participation rates have helped prevent the labour market from tightening.  However, in Q2, participation dipped from a record high (in 30 years of data) from 70.6 to 70.0.  As such, the unemployment rate fell as expected from 4.9% to 4.8%, a low since Q4-2008.”

“The RBNZ does not view capacity in the economy through the lens of the unemployment rate, preferring to express this in terms of an overall economy output gap, which is viewed as close to zero or neutral (but with a wide estimation error).    Unemployment fell much further in 2007, to 3.3%, but this was in an inflationary environment and appeared too tight.  The RBA Governor Wheeler in Q&A during a press conference early this year suggested 4.5% was perhaps a neutral rate of unemployment.”

“The Labour Cost Index rose 1.7%y/y in Q2, up from 1.6%y/y, a high since Q1-2015.  The gains were led by the public sector (+1.9%y/y), whereas the private sector remained low at 1.6%y/y.  As yet there is little evidence of accelerating wages, which remains around zero in real terms.”

“The data probably don’t add too much to the outlook for monetary policy in New Zealand. There was some tightening in the labour market, but the pace of jobs growth has slowed, albeit still quite strong from year-ago levels.  Wage growth yet to break out of its doldrums.”