Economic upswing flows into jobs

Auckland created 55,500 jobs this year, mostly in retail, food services, accommodation, construction and manufacturing. Photo / Richard Robinson

Employment growth data strong but annual pay increases skewed towards rises of less than 2 per cent

Unambiguously strong labour market data for the September quarter indicate the economic upswing under way is now flowing through to jobs, if not yet to wages.

The quarter's household labour force survey recorded an increase of 27,000, or 1.2 per cent, in the number of people employed, enough to absorb a rise of 23,000 in the size of the labour force and reduce the ranks of the unemployed by 4000 to 150,000.

It lowered the unemployment rate to 6.2 per cent, from 6.4 per cent in the June quarter.

The last time it was lower than this was in June 2009 - before the recession had caught up with the labour market - and it compares with an average unemployment rate of just under 7 per cent through 2012.

It is not a case of the unemployment rate being flattered by people dropping out of the labour market. On the contrary the participation rate, which is the proportion of people 15 and over either working or actively looking for work, jumped to a historically high 68.6 per cent from 68.1 per cent in June.

Nor is it a case of employment growth being mainly in part-time work, which can be as little as one hour a week. Full-time employment rose by 17,000, or 1 per cent, in the quarter and is up 64,000, or 3.7 per cent, for the year.

Hours worked rose 1.6 per cent in the quarter and 3.8 per cent over the year.

Nor is it all about the Christchurch rebuild.

The national unemployment rate excluding Canterbury is 6.5 per cent, down from 6.8 per cent in June.

Employment growth over the past year has been driven by Auckland, Statistics New Zealand said. In the year to September 2013, employment in Auckland rose by 55,500 people, while unemployment fell by 12,000.

The main contributors to the region's employment growth were retail trade, and accommodation and food services (18,400), construction (10,100) and manufacturing (9200).

While employment growth was strong, wage inflation remained benign.

The labour cost index recorded an increase of 0.4 per cent in private sector salary and ordinary time wage rates, unchanged from the previous two quarters, lowering the annual rate to 1.6 per cent, barely ahead of consumer price inflation of 1.4 per cent over the same period. The distribution of annual pay increases - among the bare majority of rates to record any increase at all - has been increasingly skewed towards rises of less than 2 per cent, while the proportion over 3 per cent has dwindled.

The Reserve Bank is watchful for signs of rising construction costs spreading from Christchurch to the rest of the country and from the construction sector to the broader economy.

Construction labour cost remained subdued in the September quarter - surprisingly so, ASB economist Daniel Smith said, given reports over the past year of capacity constraints in Canterbury.

Construction wage rates rose 3.5 per cent over the year in Canterbury and just 1.5 per cent in the rest of the country.

"That suggests that costs within Canterbury are not accelerating at an uncontrollable pace, and that labour cost pressures are not spilling over to the rest of the country," Smith said.

Bank of New Zealand economist Doug Steel said, "We anticipate annual employment growth will be in excess of 3 per cent by the middle of next year."

"With the labour market recovery finally on track, 2014 looks set to be a bright year for New Zealand households and the economy at large," Infometrics economist Matt Nolan said.