Unemployment rise worse than expectations

All eyes will be on Adrian Orr and whether he will lower the Official Cash Rate on the back of a gloomy economic outlook. Photo: Lynn Griveson.

Unemployment ticked slightly up in the June 2018 quarter, ending five quarters of consecutive falls and defying market expectation. Thomas Coughlan reports.

The seasonally adjusted unemployment rate was 4.5 percent in June 2018, up from 4.4 percent last quarter as 4,000 workers joined the unemployment queue. Unemployment had been falling for five consecutive quarters from 5.3 percent in December 2016.

ANZ, ASB, BNZ, Westpac, and the Reserve Bank had all projected the rate would remain unchanged at 4.4 percent.

The uptick set against the backdrop of poor business confidence and in defiance of market expectations will concern the Government, but Statistics NZ said today the rate remains close to the nine-year low, reached last quarter.

Under-utilisation also up

Under-utilisation also increased slightly, from 11.9 percent last quarter to 12.0 percent.

The Under-uitilsation rate measures the untapped capacity in the labour market by surveying those who could work and want to work more, as well as those who are working but want to work more.

These headline figures will worry the Government, which has struggled with flagging business confidence numbers. ANZ’s most recent business outlook survey found a disappointing net 2 percent of businesses were looking to take on more staff.

It will also add to calls for the Reserve Bank to cut the Official Cash Rate, currently 1.75 percent, at its August MPS and OCR review on August 9. Governor Adrian Orr has said he remains equally likely to move the rate up or down depending on outlook – and the outlook is worsening.

Today’s numbers could provide the Governor the opportunity to fulfil his new dual mandate of managing both inflation at around two percent and 'contributing towards maximum employment.'

There was some good news for Finance Minister Grant Robertson, who has stated he wants to make the economy more inclusive. Women and Maori both posted their highest employment rates. 72.8 percent of women and 64.6 percent of Maori are employed.

Labour costs up

The Labour Cost Index, which measures employment costs also increased in the quarter, rising 0.5 percent over the quarter and 1.9 percent in the year to June.

This was only slightly impacted by the minimum wage increase of 75 cents implemented in April. Statistics said that if wages affected by the minimum wage increase had remained constant in the June 2018 quarter, LCI salary and wage rates would have increased just 0.1 percent less.

Pay equity agreements continue to be a significant driver of employment costs, contributing 0.3 percent to annual LCI growth across all sectors.

Wage growth was markedly higher in the private sector than the public sector. This could impact nurses and teachers wage negotiations, both still ongoing. A key theme of the nurses negotiation has been the sentiment that public sector wage growth has failed to keep pace with growth in the private sector.

Private sector salary and wage rates increased 2.1 percent annually, while the public sector saw an increase of just 1.4 percent.

Statistics NZ said that the ongoing wage negotiations contributed to lower growth. The metric will probably see an uptick once wage negotiations conclude.