Labour market in sound health

Nick Tuffley, chief economist at ASB Bank.

New Zealand's labour market is in reasonable health, despite a higher jobless rate in the first quarter, with employment growing faster than the total working-age population, economists say.

Seasonally adjusted employment grew by 1.2 per cent, or 28,000, in the first quarter to about 2.4 million people, or 65.1 per cent of the working-age population, which climbed by 0.8 per cent, or 29,000, to about 3.69 million in that time, government figures show. Unemployment increased by 7.4 per cent, or 10,000 people, to 144,000, or 5.7 per cent of the labour force.

While employment is growing, wage inflation as measured by the labour cost index remains subdued, rising at 0.4 per cent in the quarter for an annual rate of 1.6 per cent. That tallies with the Reserve Bank's assessment that record migration is not only boosting economic growth but also increasing the labour force. The central bank is expected to cut the official cash rate to a record low 2 per cent in June, to stoke annual inflation currently running at just 0.4 per cent, below its target range.

"Overall today's data suggests the labour market started 2016 in good health," said Anne Boniface, senior economist at Westpac Banking. "There appears to be little to worry the RBNZ on the inflation front in today's data and, at the margin, they may feel slightly more comfortable about their inflation outlook."

The participation rate rose to 69 per cent from 68.5 per cent.

"Overall, the various labour market surveys suggest that wage pressures are likely to remain subdued," said Nick Tuffley, chief economist at ASB Bank. "If the participation rate remains around these levels then spare capacity in the labour market is likely to continue to weigh on wage growth."

Auckland recorded a 2.9 per cent increase in employment and accounted for 49 per cent of overall New Zealand employment growth in the 12 months ended March 31, the government statistician said.

- BusinessDesk