September quarter labour market figures were published today by Statistics NZ.
They show the economy generating strong jobs growth, but without much wage inflation or much of a reduction in employment because the extra jobs are being soaked up by record high net migration and an increasing number of superannuitants choosing to keep working.
To illustrate the conundrum: 179,000 jobs have been created in the last two years, but unemployment has actually risen by 1,000 over the same period to 128,000. That's because the Labour force rose by 180,000 over the same period, due largely to net migration of 131,188 over that period and an increase in the participation rate from 68.6% to 70.1%. That higher participation has been driven largely by an increase in the number of over 65s working. The number of over 65s working increased by 20,400 to 156,900 in the last year.
Statistics NZ reported employment rose 35,000 in the September quarter, with most of the jobs in Auckland and mostly in real estate and rental sectors. However, record-high net migration and that rise in the participation rate to a record-high soaked up those jobs and meant the unemployment rate fell only slightly, and wage growth was subdued.
The 1.4% jobs growth was stronger than the consensus forecast by economists of around 0.5%, but private sector wage and salary growth of 0.4% for the quarter was unchanged and broadly in line with forecasts. Economists said they continued to expect the Reserve Bank to cut the Official Cash Rate by another 25 basis points to 1.75% next Thursday, pointing to the still-subdued wage growth and doubts about the heavily revised Household Labour Force Survey.
The New Zealand dollar initially jumped around 30-40 basis points to 72.1 USc after the figures, but did not follow through on what would normally be seen as very strong figures, given the doubts about the survey and the modest wage growth. Wholesale interest rates rose 2 basis points.
Over 65s workforce growing strongly
The strong jobs growth is being soaked up by an increase in the labour force from both net migration and a rise in participation in the workforce, particularly through a rise in the number of workers over the age of 65.
The universally available and non-means tested New Zealand Superannuation system allows people on the benefit to work at the same time. The number of over 65s working rose 3,900 to 156,00 in the September quarter from the June quarter and was up by 20,400 from a year ago. The participation rate for over 65s rose to a record high 23.7% from 21.6% a year ago.
The overall participation rate rose to 70.1% in the September quarter from 69.7% in the June quarter and 68.4% a year ago. The working age population grew by 24,000 during the quarter to 3.739 million, due mostly to migration, while the number of people not in the labour force fell 8,000 to 1.117 million.
This meant the size of the labour force rose 33,000 and unemployment fell by just 3,000 to 128,000. The unemployment rate fell to 4.9% from a revised 5.0% in the June quarter. This was the lowest unemployment rate since the December quarter of 2008. Unemployment has fallen by 7,000 over the last year and is up 1,000 from two years ago.
All this meant wage inflation remained subdued, despite some predictions that wage inflation may show signs of stirring, given strong jobs growth and economic growth.
The Labour Cost Index's measure of salary and wage rates for the private sector rose 0.4% in the September quarter from the June quarter, which was unchanged from the previous five quarters. Annual private sector wage inflation was 1.6%, unchanged from the previous quarter.
Half of jobs growth in Auckland
Just over half (51.6%) of the jobs growth was in Auckland, following by Otago with 20% and Northland with 17.8%.
Statistics New Zealand said the only industry to have significant employment growth in the September quarter was the rental, hiring, construction, and real estate services sectors.
Construction jobs rose by 8,400, retail and food services rose by 5,500 jobs and rental, hiring and real estate jobs rose by 5,100.
ASB Chief Economist Nick Tuffley said the headline jobs growth figures appeared to be very strong, but changes in Statistics New Zealand's Household Labour Force Survey meant the figures should be treated with caution. He said he still saw another cut next week, with the chance of another one early next year.
"There are no indications in the labour market results that reinforce the need for further OCR cuts beyond next week, though the RBNZ will downplay the apparent strength of the employment/unemployment figures given ongoing question marks about their reliability," Tuffley said.
Westpac Senior Economist Anne Boniface said the labour market had clearly continued to strengthen heading into the second half of the year, but this was not yet having an impact on nominal wages.
Boniface said the jobs growth figures were likely to be stronger than the Reserve Bank expected.
"Coming in conjunction with this morning’s stonking rise in dairy prices, this means the economy is probably on a firmer footing than the Bank anticipated at its last Momentary Policy Statement. However, there will be lingering concerns about the lack of wage growth and the impact of this on the inflation outlook," she said.
Kiwibank Chief Economist Zoe Wallis also described the jobs growth as remarkably strong, but pointed to the lack of a pick up in wage inflation.
"From an inflation point of view, what remains missing in this story of a tightening labour market is a notable pick up in wage growth. The rapid rise in the labour force participation rate - influenced by current record net migration - suggest that rising labour supply is keeping downward pressure on wage growth," Wallis said.
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