Employment grew more than expected and unemployment fell more than expected in the December quarter, despite lower business confidence and fears by some that the economy slowed during and after the election.
However, wage growth was relatively modest and broadly in line with expectations, reducing the risks that inflation and interest rates would rise sooner and faster than expected.
Statistics New Zealand reported the unemployment rate fell to a nine-year low of 4.5 percent in the December quarter from 4.6 percent in the September quarter after employment rose by 12,000 or 0.5 percent in the quarter. Economists had expected a slight tick up in unemployment to around 4.7 percent and had expected employment to rise by around 0.3 percent.
One reason the unemployment rate did not fall by more was the participation rate remained only marginally below its record high set in the September quarter of 71.1 percent. It was 71.0 percent in the December quarter. Unemployment can rise despite jobs growth if the participation rate rises.
However, the under-utilisation rate, which includes people who are working part-time and want more hours, rose from 12.0 percent to 12.1 percent as the number of people saying they were under-employed rose 7,000 to 122,000. The total number of under-utilised workers rose 6,000 to 343,000.
“This measure is just as important as the unemployment rate,” Labour Market Statistics Senior Manager Jason Attewell said.
Statistics New Zealand’s comments highlighted the amount of slack still left in the labour market before the economy hits its so-called ‘full employment’ or inflation-creating level known as the Non-Accelerating Inflation rate of Unemployment or NAIRU.
Treasury has forecast the NAIRU is around 4.25 percent, but the Reserve Bank has consistently said it cannot measure it precisely and that the economy is operating near its full capacity. Unemployment fell to 3.3 percent in December of 2007 during the previous Labour Government, but most economists saw that level as inflation generating and above the ‘speed limit’ of the econony. The debate over whether the economy is operating at full employment is even more important this year as the Government reviews the Reserve Bank with the aim of maximising employment.
The faster-than-expected employment growth also did not generate much wage inflation.
The closely-watched Labour Cost Index measure of quarterly wage inflation in the private sector fell to 0.4 percent in the December quarter from 0.7 percent in the September quarter. Economists had expected growth of around 0.5 percent. Annual LCI private sector wage inflation was unchanged at 1.9 percent and slightly below the market’s expectation of around 2.0 percent.
The LCI measure takes into account the changes in seniority and experience of workers, which means it measures the rates employers pay for the same job done at the same standard.
The Quarterly Employment Survey (QES) measure of private sector average ordinary time hourly wages increased 0.8 percent for the quarter, which was less than an unusually high 1.2 percent in the September quarter. The September quarter was affected by the $2 billion pay equity settlement for aged care support workers, which kicked in from July 1.
Economists had expected a slightly smaller increase in private sector wages for the quarter.
But the figures show wage growth has yet to convincingly break out and worry those looking at the interest rate outlook.
However, there is plenty of total extra cash ending up in consumers’ pockets as more workers join the workforce because of migration and more workers working longer hours, and overtime in particular. Total weekly gross earnings rose 1.4 percent for the quarter and were up 5.5 percent from a year ago.