New figures are expected to reveal if more people have been laid off.
New figures are expected to reveal if more people have been laid off.
New labour market data due out on Wednesday is expected to show unemployment on the rise.
A consensus of bank economists is forecasting that Stats NZ figures will show the official unemployment rate has ticked up from 3.6 per cent to 3.9 per cent in the three months to September30.
“The pace of hiring over the quarter is expected to slow given the catch-up from post-Covid worker shortages appears to have largely run its course,” said ASB senior economist Mark Smith.
“At the same time, firms are still reluctant to hire given the economic outlook and election-related uncertainties.”
Labour market data collected by Stats NZ includes unemployment, employment and labour market participation, labour costs and wage growth.
The higher cost of living and record numbers of work-ready immigrants would likely show labour force growth outstripping that of employment, with the labour market participation rate potentially hitting a fresh record high, he said.
“As a result, the unemployment rate is expected to hit its highest level since mid-2021 and is on track to approach 5 per cent by the end of next year.”
Meanwhile, it was likely that labour cost growth had peaked on an annual basis. It was expected to cool over time given increased competition for jobs and easing labour market frictions, Smith said.
“However, the RBNZ will be wary of persistently high wage inflation rates that are not productivity-driven. We believe 5.50 per cent is the OCR peak this cycle but expect the RBNZ to keep restrictive monetary settings for as long as necessary to hit its inflation target.”
Westpac senior economist Darren Gibbs said the forecast increase in the unemployment rate was supported by several indicators.
“For example, we note that the NZIER’s September QSBO survey pointed to a marked reduction in perceived skilled shortages and a sharp reduction in the proportion of firms citing labour as a constraint on output,” he said.
Meanwhile, the uptrend in the number of people on Jobseeker benefits – only loosely correlated with the unemployment rate – had continued at a similar pace as seen during the June quarter (with recent migrants not being eligible to receive these benefits).
Turning to wages, Westpac expects that the overall Labour Cost Index (LCI) will increase 1.1 per cent in the September quarter, causing annual growth to dip to 4.2 per cent.
“Pay settlements in the healthcare and education sectors should contribute to a large increase in the public sector,” Gibbs said.
“Perhaps more importantly for the RBNZ, we expect the private sector LCI to increase by 1 per cent in the September quarter.”
This was less than the 1.1 per cent growth recorded in the June quarter – which was influenced by the 7 per cent lift in the minimum wage – and 0.2 percentage points lower than the same quarter a year earlier.
“Such an outcome would lower annual growth by 0.2 ppts to 4.1 per cent – still very high by historical standards, reflecting past tightness in the labour market,” Gibb said.
ASB economist Mark Smith. Photo / Supplied
“The Quarterly Employment Survey, which has narrower coverage and is influenced by compositional changes in employment, reported a 6.9 per cent lift in average hourly earnings in the year to June, down from a peak of 7.6 per cent in the year to March. This measure is likely to ease further in the September quarter.”
The labour market continued to gradually loosen, and, for now, was evolving broadly in line with the RBNZ’s expectation, said ANZ economist Henry Russell.
“We don’t see [this] week’s data as a smoking gun prompting the RBNZ to restart hikes at the November meeting, but nor do we see it as signalling ‘job done’,” he said.
“We remain unconvinced that the labour market is turning fast enough to see domestic inflation dissipate in a reasonable time-frame. We think that will require further tightening, with a 25bp hike in February.”
For the RBNZ, creating slack in the labour market sooner rather than later was paramount for it to have confidence that inflation is on the way out, he said.
“We expect the labour market to transition to an outright disinflationary state early next year.”
More labour market slack was likely to emerge heading into 2024, said ASB’s Smith.
“With earlier worker shortages looking to have been mostly filled, it would take a large expansionary shock to cause the demand for labour to outstrip very strong growth in the labour supply,” he said.
“We do not see anything on the horizon that will do this. Our work suggests that the employment-rich composition of strong net immigration and elevated living costs are key factors that will maintain very high worker attachment for a while yet.”
