Skills shortage: The job market is expected to have stayed tight. Photo / Michael Cunningham
Skills shortage: The job market is expected to have stayed tight. Photo / Michael Cunningham
Economists expect unemployment to have dipped back to record lows and wage growth to have remained near record highs when new data is released by Stats NZ on Wednesday.
Traditionally that would be good economic news. But right now with inflation increasingly entrenched in the economy, it is likely tostoke fears that the Reserve Bank will need to push rates even higher.
The data "should confirm that the Kiwi labour market remained exceptionally tight in the September quarter," ANZ economist Finn Robinson said.
While noting that volatility makes it hard to determine exactly where the unemployment figure will actually land, ANZ has pencilled in a 0.2 percentage point drop to a new record low of 3.1 per cent.
"Overall the release is expected to confirm that the inflationary chasm between labour demand and supply in New Zealand continues," Robinson said.
The data was unlikely to give much comfort to the Reserve Bank, Westpac chief economist Michael Gordon said.
"The labour market is crucial to the Reserve Bank's efforts to bring inflation under control," Gordon said.
"With the unemployment rate close to a record low, and employers desperate to fill labour shortages pay rates have picked up sharply in the last year or so," he said.
"Those labour costs are in turn being passed through into prices – the latest CPI report shows that price rises are increasingly widespread across all categories and that local forces are taking over as the main source of inflation pressures."
"We expect a solid 0.6 per cent rise in employment for the quarter, and a small dip in the unemployment rate back to its record low of 3.2 per cent," Gordon said.
Westpac expects to see a 1 per cent rise in the Labour Cost Index, lifting the annual growth rate to a 14-year high of 3.6 per cent.
Westpac Bank chief economist Michael Gordon. Photo / Supplied
For the Quarterly Employment Survey measure of average hourly earnings, which comes closer to capturing what workers are actually getting in hand, Westpac is picking 6.4 per cent growth in the year to June (and 7 per cent for the private sector).
ANZ is picking wage growth is likely to have accelerated again, with private sector average hourly earnings picked to rise 2.3 per cent, taking the year-on-year rise to 8.2 per cent - exceeding annual inflation of 7.2 per cent.
The ASB economist is picking 3.2 per cent unemployment.
"There is a high degree of uncertainty given the broad range of factors impacting the unemployment rate, but it is expected to remain very low given the extreme tightness in other labour market metrics," senior economist Mark Smith said.
"Ministry of Social Development figures show work-ready Jobseeker numbers have fallen further in [the third quarter], hitting their lowest level since early 2020."
It all adds up to persistently high core inflation and the need for the Reserve Bank to keep hiking rates.
"High inflation looks to be increasingly entrenched and domestically driven and employment is above its maximum sustainable level," Smith said.
"If the labour market tightens and labour cost growth escalates...as we expect, markets will increasingly factor in the possibility of a 75 basis point hike and likely push up terminal OCR pricing higher."
The RBNZ might tread more carefully if it believed future wage and inflation outcomes were on a downward trajectory, he said.
"Nevertheless, the RBNZ will likely maintain restrictive OCR settings until they are confident inflation is under control and employment closer to its maximum sustainable level. This looks likely to be in place until about 2024 according to our reckoning."
