Unemployment rose slightly in the June quarter, fuelling speculation the economy is slowing and may need more stimulation to get to full employment, Thomas Coughlan reports.
Unemployment nudged up slightly in the June 2018 quarter, rising from its nine-year low of 4.4 percent to 4.5 percent. Economists had expected it to be flat.
Underutilisation, a measurement of people who want to work more, also increased to 12 percent from 11.9 percent.
This slight uptick could be evidence of what economist Cameron Bagrie described on Tuesday as an economy at “stall speed”.
It could fuel calls for Reserve Bank Governor Adrian Orr to indicate his next move for the Official Cash Rate may be another cut from 1.75 percent. His next decision is next Thursday.
Orr’s mandate is to "contribute to supporting maximum sustainable employment” whilst also keeping inflation between one to three percent – a change from previous governors who were only tasked with controlling inflation.
The underutilisation rate in particular, has room to fall. It spent the period between 2005 and 2007 below ten percent.
Finance Minister Grant Robertson said his goal was to reduce the number of underutilised workers, but the economy was in a transitional phase to a more sustainable path.
The end of a downward trend
Unemployment has fallen for five consecutive quarters from 5.3 percent in December 2016. Bank economists had projected the unemployment rate would hold steady at 4.4 percent, so yesterday’s increase, which equated to an extra 4000 unemployed workers, was a surprise.
This was unwelcome news after yesterday’s dark business outlook numbers, which showed just net two percent of firms had positive hiring intentions.
But Grant Robertson said the overall trend in the economy was positive, saying the main issue was that more people had entered the labour force.
“Overall the trend is good, if you look to this time last year we’ve come down from 4.8 percent to 4.5 percent,” Robertson said.
“There’s more people in the labour force this quarter so that’s seen a slight tick up in the unemployment rate,” he said.
This view was vindicated by bank economists who affirmed that the economy remained close to full employment.
Kiwibank economist Jeremy Couchman said the numbers were still indicative of a labour market at or near maximum sustainable employment and that there was “little concern” at the slight rise.
ASB senior economist Mark Smith also noted that labour utilisation remained at “historically high levels”.
He said that there seemed to be “little need of additional policy stimulus to meet employment objectives”.
But Smith also noted “downside risks to the growth and employment outlook appear to have grown” and said leaving the OCR unchanged would give the bank more scope to cut rates to stimulate growth if these risks materialised.
But CTU Chief Economist Bill Rosenberg told Newsroom that the economy was not yet at full employment and that the high underutilisation rate showed people were still not finding the work they wanted.
Wages grow – but will the growth be sustained?
The labour market statistics also showed wages have ticked 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.
But much of this increase came from an increase in the minimum wage of 75 cents an hour in April. Stats NZ said three percent of all wages were partly influenced by the hike in the minimum wage, while 17 percent of wages and salaries rose in the June quarter.
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.
This begs the question of whether the much anticipated wage inflation is starting to hit, or whether the increase in LCI can be put down to other, temporary factors.
Couchman said stripping away the minimum wage hike and last year’s Care and Support Workers pay equity settlement showed wage growth remained subdued. He said that wage growth would eventually come.
This sentiment was echoed by ANZ senior economist Liz Kendall who said nominal wage inflation, excluding temporary factors, was weak.
National leader Simon Bridges seized on this detail, noting that wage growth was failing to keep pace with inflation.
“Wage growth is behind inflation that’s what we’ve seen in the last month,” Bridges said.
“I don’t think there is any rational explanation for this other than the actions of this Government.”