In today's email we check out the latest jobs growth figures, and compare them against wage and salary growth.
1. Lots of jobs growth...
The economy generated more jobs than expected in the March quarter, but wage growth remained stubbornly and surprisingly low despite widespread talk of skill shortages in the seventh year of GDP growth.
Statistics New Zealand reported employment grew by 1.2 percent or 29,000 to 2.539 million in the March quarter and was up 5.7 percent from a year ago. The 1.2 percent growth for the quarter was up from 0.7 percent in the previous quarter (and above the 0.8 percent forecast by economists).
However, most of that growth in jobs was soaked up by an increase in the size of the labour force (23,000), which in turn was driven by a 0.1 percentage point rise in the participation rate to a record high 70.6 percent and population growth from migration. Most of the jobs growth (16,000) was in part time jobs.
The end result was a fall of only 6,000 to 132,000 in the number of unemployed people, which cut the unemployment rate by 0.3 percentage points to 4.9 percent. That was also better than the consensus forecast by economists of 5.1 percent.
However, it's also still above the Treasury's estimate of full employment known as the NAIRU (non accelerating inflation rate of unemployment). It estimated a NAIRU of 4.25 percent in December last year.
The under-utilisation rate, which includes people who would like more work or who want work but can't start immediately, fell 0.3 percentage points to 12.5 percent. That meant there were 347,000 under-utilised workers in the March quarter, down 8,000 from the previous quarter.
The number of 15-24 year olds who were not in employment, education or training, known as the NEETs, fell 4,000 to 86,000, but is up 4,000 from a year ago. The NEET rate fell to 12.8 percent from 13.5 percent in the December quarter.
Frustration that strong economic growth is not reducing unemployment much or driving wage growth much faster than inflation remain at the heart of the debate in the political economy. Record high net migration and fast-rising housing costs (both rents and prices) are central to that debate.
2. But with real wage deflation...
The faster-than-expected jobs growth should, in theory, signal an economy approaching its limits and generating stronger wage inflation that generates higher consumer price inflation. That, in theory, would push the Reserve Bank towards lifting interest rates sooner than previously expected.
But the wage growth was again weaker than the economic growth and business surveys about skill shortages would suggest.
Average ordinary time hourly earnings rose 0.5 percent in the quarter to $29.90 and were up just 1.5 percent from a year ago. That's also less than the 2.2 percent rise in the Consumer Price Index in the March quarter, implying real wage deflation over the last year.
We'll get a better read on which types of households have fared best from an inflation stand-point tomorrow when Statistics New Zealand releases its new household living costs price indices for the March quarter. The December quarter figures showed beneficiaries and those in the lowest spending quintile of households fared worse than higher spending groups because of fast-rising costs for rent and cigarettes.
Somewhat surprisingly given the intense activity in construction and widespread reports of skill shortages and escalating building costs, annual salary and wage growth for the construction industry fell to 1.8 percent in the March quarter from 2.1 percent in the December quarter.
It is the great conundrum of our economy right now: after seven years of economic growth and with unemployment below five percent there seem few signs of higher wage growth or much inflationary pressure.
The end result is economists expect the Reserve Bank to leave its Official Cash Rate on hold for the forseeable future, possibly well into 2018.
3. Shifting the goalposts
Our National Affairs Editor Shane Cowlishaw covered Prime Minister Bill English's big pre-Budget speech yesterday, which included a fresh set of Better Public Service targets and a ramping up of his social investment approach.
Having failed to achieve the previous target of cutting re-offending by 25 percent, English set a new target of reducing the number of serious offences by 10,000.
Shane goes into the new targets in depth and finds a number of goalposts being moved around. See his full report here Newsroom Pro.
English also previewed $321 million of new social investment spending over four years in the Budget, but left plenty of detail for May 25.
He did specify that $69 million would be spent on national rollout of the Family Start Programme, an expansion of behavioural services for young children and support for pre-school children with oral language needs and literacy difficulties.
4. Gerry hopes to say shalom
Our Foreign Affairs and Trade Editor Sam Sachdeva interviewed Gerry Brownlee yesterday before the new Foreign Minister's first trip to Australia today.
Brownlee told Sam he had written to Israeli Prime Minister Benjamin Netanyahu on Tuesday seeking to restore full diplomatic ties between the two countries.
“I sent him a letter yesterday afternoon, expressing a desire to get the relationship back on track, to recognise that we have had an incident that has caused a problem and proposing that we have a process for getting full diplomatic representation back in place and reasserting that New Zealand has been a long-term friend of Israel,” Brownlee said.
That was the scoop, but there's plenty more in Sam's full interview.
Brownlee spoke about the difficulty of following in Murray McCully's footsteps, and the legacy he leaves behind in Christchurch.
In the five months before Kiwis go to the polls, he wants to lead a “refocusing back into Europe” and the trading opportunities which will flow from Brexit, while also building on ties with the Gulf states and maintaining our relationship with traditional allies like the US and the UK.
Perhaps unsurprisingly, Brownlee's biggest concern is the increasing volatility of North Korea given New Zealand’s trade ties with Asia.
5. Security system not secure
Meanwhile, Sam also reports Inspector-General of Intelligence and Security Cheryl Gwyn found all four of the IT systems used by the SIS to hold vetting data had not been formally certified or accredited to meet security standards as required by law, some for as long as seven years.
Chris Finlayson, the minister responsible for the SIS, said while the problems had now been addressed, it was unsatisfactory they had occurred previously. “She wasn’t happy, and neither was I, frankly.”
6. Winston vs 'neo-liberal, globalist voodoo'
New Zealand First Leader Winston Peters is riding high in the polls with the spotlight of an increasingly intense debate about migration firmly on him.
So his breakfast speech yesterday to the Wellington Chamber of Commerce got quite a bit of attention, sparking a few questions after English's pre-Budget preview.
Peters responded to criticism from the New Zealand Initiative, focusing on some of its staff members' status as immigrants.
"The fact is, massive immigration is neo-liberal, globalist voodoo. It is an attack on those who believe in the nation state," he said.
He went on to laud the monetary policy approach of Singapore, which targets its exchange rate at a certain level, rather than interest rates.
"There is no magic wand to get the dollar down to an appropriate and competitive level – and we have never pretended that there is, but in today’s environment of historically unprecedented low interest rates, failure to reform the Reserve Bank’s Act to make it fit for purpose is inexcusable."
7. English on currency
English was asked about whether a Singaporean style monetary policy proposal would be a 'bottom line' in any New Zealand First coalition negotiations that National would accept.
He didn't rule anything in or out, and also appeared to endorse a currency level below 70 USc. It stood at 68.9 USc this morning, down from an immediate post-jobs data high of 69.6 USc.
"We don’t agree with trying to manage the currency. Even Singapore struggles with it, and actually, the currency’s at a level which I think a lot of our exporters are finding pretty positive," English said.
"I don’t think anyone’s got a serious proposition to try and manage the currency. If it can run around the 70c where it is now, maybe a bit lower, that’s not a bad balance for New Zealand."
8. 345 pages of no
Newsroom's Co-Editor Tim Murphy read all 345 pages of the Commerce Commission's unanimous decision yesterday to reject NZME and Fairfax's application to merge.
He described it as a dense, deep and forceful rejection of the plan.
"It anticipated and addressed likely lines of legal challenge by the two denied suitors. It was a very correct, forward defensive position, no gap left between bat and pad," Tim writes over at Newsroom.
Fairfax's editors in New Zealand described as 'catastrophically wrong and naive' and later attacked the Commission for spending 45 percent of its advertising budget on Facebook and Youtube.
Fairfax Group CEO Greg Hywood said: "This decision does nothing to address the challenge of the global search and social giants, which produce no local journalism, employ very few New Zealanders, and pay minimal, if any, local taxes."