The market is expected to have remained tough for job hunters. Photo / 123RF
Most economists expect unemployment ticked up in the three months to the end of September.
New data from Stats NZ’s quarterly Household Labour Force Survey is due this Wednesday.
The majority of economists are forecasting the topline unemployment rate to land at 5.3% (up from 5.2% in the June quarter).
But the more interesting labour market trends are likely to be buried in the detail of the survey, which also measures employment rates, participation rates and underemployment.
“We expect the data to show a soft labour market reflecting previous economic weakness, but with some signs of stabilisation,” said BNZ senior economist Doug Steel.
“The labour market tends to lag the economic cycle.”
Employment and demand for labour looked to be edging higher from a low level, he said.
“There are hints that this may be changing market dynamics as growth in labour supply is also slow.”
Westpac senior economist Michael Gordon said he expected falling youth participation in the labour market would continue to flatter the unemployment rate.
The participation rate – those actively engaged in working or looking for work – has dropped sharply in the past year as increasing numbers of young people have returned to study.
The Monthly Employment Indicators had shown that youth employment remains the biggest point of weakness for the labour market, he said.
That suggested a further drop in participation among young people was likely as they chose to stay in school for longer rather than entering the ranks of the unemployed.
“With jobs growth being insufficient to absorb the new entrants into the workforce, that implies a rise in the unemployment rate and/or a fall in participation,” Gordon said.
“Our forecast splits the difference – we expect a tick up in the unemployment rate from 5.2% to 5.3%, and a drop in the participation rate from 70.5% to 70.4%.”
Broadly, the ongoing slack in the labour market was expected to keep downward pressure on wages.
ANZ senior economist Miles Workman said: “Given the negotiating power is currently concentrated on the employer side of the table, we expect annual wage growth to slow.
“Wage inflation as measured by the private sector Labour Cost Index (including overtime) is expected to slow from 2.3% to 2.2%, and growth in private sector average hourly earnings (ordinary time) is expected to slow from 4.6% to 4.3%,” he said.
Hours paid and hours worked have contracted more sharply than employment in recent quarters.
That suggested firms were holding on to staff despite subdued demand for goods and services.
“If the economic recovery is delayed for too long, firms may lack the balance sheet capacity to continue hoarding labour in anticipation of it,” Workman said.
“That means the unemployment rate could rise more than we or the RBNZ are forecasting.”
The Reserve Bank (RBNZ) had mitigated this risk with its dovish pivot in August and outsized Official Cash Rate cut in October, he said.
“But long and variable lags mean we’re not out of the woods yet.”
ASB took a more optimistic view, picking topline unemployment to hold steady at 5.2%.
“The worst is behind us, but we don’t expect to see a meaningful lift in employment until 2026,” said senior economist Mark Smith.
The still-heightened competition for jobs would act to cap wage increases, with employees focusing on keeping their jobs rather than securing chunky wage increases, he said.
“Slowing growth in labour costs should ensure that core inflation will ease towards the 1-3% inflation target midpoint.”
ASB remains of the view that a 25 basis point cut will be delivered in November as the RBNZ seeks to underwrite the recovery.
“We currently expect 2.25% to be the low point in the OCR for this cycle, but we also see the risk of the OCR going lower if data suggest the economic recovery is struggling to get traction,” Smith said.
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.