The data would reveal just how much pain the recent “inflation-correcting” monetary tightening has inflicted on the labour market, ANZ senior economist Miles Workman said.
That would include the impact felt directly (via job losses) and indirectly (via discouraged worker effects, reduced bargaining power and opportunities, and heightened job insecurity), he said.
“The labour market is now well into disinflationary territory, and given typical lags and continued monetary restriction, the [third quarter] data won’t be the worst of it.”
The jobs market was typically one of the more lagging elements of the economic cycle and that was proving to be the case again this time, Westpac senior economist Michael Gordon said.
“While GDP has effectively stalled since late 2022 (and has shrunk markedly in per capita terms), it’s only in the last year that we’ve seen a meaningful rise in the unemployment rate. Similarly, we expect the unemployment rate to keep rising to a peak of 5.6% in the year ahead, even as lower interest rates provide the spark for a pickup in economic growth.”
Kiwibank economists described it as “the last shoe to drop”.
“But it’s dropping now,” they said. “The Kiwi economy has been in recession for the last two years. Unemployment losses are now climbing as a result.”
This week’s release will also include wage data which should offer more clues as to the speed at which inflation is dwindling.
“Wage growth tends to be even more of a laggard than jobs,” Gordon said.
“Indeed, at face value, it might seem that the adjustment process has yet to begin, with the Labour Cost Index (LCI) accelerating to a 4.3% increase in the year to June.”
But the LCI had been driven to an unusual degree by pay settlements that were signed by the previous Government and phased in over a couple of years, he noted.
“Once we exclude the relevant sectors (health and education), it’s clear that wage inflation has begun to respond to the softening in the jobs market. We expect a 0.7% rise in the LCI for the September quarter.”
“On our forecast, this would see annual wage growth slow from 4.3% to 3.8% (and from 3.6% to 3.4% for the private sector).”
Gordon said expect to see a marked slowing in wage growth over the next year. This reflects both the cyclical high in unemployment, which reduces workers’ bargaining power and a moderation in inflation expectations back to the 2% target, which means that cost-of-living pay increases will be smaller than in previous years.
ANZ’s workman noted that this was the last big piece of data before the Reserve Bank’s (RBNZ) Monetary Policy Statement.
“Given the RBNZ’s confidence that inflation has been tamed and that an OCR above 4% is considered contractionary, we think it would take a significantly lower unemployment rate than their forecast (5%) to take a 50bps [basis points] cut off the table in November,” he said.
“A higher unemployment rate than that would very likely see market pricing shift further in favour of a 75bps cut.”
The weaker labour market data figures should encourage the continued frontloading of monetary policy easing, ASB’s Smith said.
“We expect a 50bps cut in November, with 2025 OCR [Official Cash Rate] moves highly conditional on the economic outlook.”
KiwiBank largely agreed with that assessment.
“We continue to expect a 50bps cut at the RBNZ’s final meeting for the year. And potentially a third 50bps cut in February,” they said.
“Market traders are more eager for the RBNZ to pick up the pace. Current market pricing shows that embers of a 75bps cut are still glowing red. However, we think we would need to see a far softer jobs report to justify such a supersize slash to the cash rate.”
Liam Dann is business editor-at-large for the New Zealand Herald. He is a senior writer and columnist, and also presents and produces videos and podcasts. He joined the Herald in 2003.
