Data Flash (New Zealand)
Household Labour Force Survey - December Q 1999
Key Points
Employment rose by 1.4% qoq in the December quarter, following a moderate increase of 0.3% during Q3.
Average market expectations had been for a rise of 0.6%.
Overall, employment increased by 2.7% during 1999, compared to an estimated GDP growth rate of around 4%.
Full-time employment recorded an increase of 3.3% in 1999, while part- time employment only advanced 0.7%, reflecting a
rising level of employer confidence.
The rise in employment was relatively broadly based, with the manufacturing sector the notable exception.
The number of total hours worked rose 3.7% (s.a., qoq) in the December quarter. Although this is a volatile series, a
movement of this magnitude cannot be completely discounted.
The unemployment rate fell further from 6.8% to 6.3%, the lowest level since 1996.
The decline in the unemployment rate was constrained by a rise in the labour market participation rate from 65.2 to
65.4.
Comment
While usual volatility in the employment data suggests that the 1.4% gain in Q4 should not be taken as a trend indicator
and is likely to be followed by a rather modest increase in Q1/2000, the latest data has added significantly to the
RBNZ's inflation worries.
The Bank, in its November forecasts, expected an unemployment rate of 6.9% at this point in time, which compares to an
actual rate of 6.3%. The last cycle showed that wage inflation appears to be rising in New Zealand once unemployment
falls below 7%. Q3 wage data pointed to a re-emergence of that trend, consistent with a continued rise of the skill
shortage indicator.
We expect Q4 wage inflation to provide further confirmation that underlying wage inflation has bottomed and is heading
for 3%. That outlook compares to the 2% the RBNZ was assuming in its latest forecast.
A similar gap between actual and trends assumed by the RBNZ has opened up with respect to productivity growth.
Indicators are suggesting a 1.0% quarterly rise in Q4 GDP. That would imply annual GDP growth in 1999 of 4.2% and
compares with 2.7% employment growth and a 5.8% rise in the number of hours worked. The RBNZ uses the hours worked data
to calculate its productivity growth estimates - which show an increase of only 0.6% over the past year. That falls far
short of the 1.5% rise assumed by the Bank.
There appear to be good reasons to treat the high increase in hours worked with some suspicion. However, adjusting the
number down somewhat would only remove part of the RBNZ's forecast error with respect to productivity trends and still
leave a big question mark regarding the Bank's assumption of productivity growth accelerating to 2.6% next year.
Taking wage and productivity trends together, unit labour costs growth appears to be running around 2% p.a., compared to
the RBNZ assumption of around 0.0-0.5%.
With the unit labour cost variable carrying a high weight in the Bank's inflation model, a significant forecast revision
with respect to medium-term inflation trends should be expected for the 15 March Monetary Policy Statement. With
monetary conditions still close to historic lows as a result of the underperforming NZD, we expect the RBNZ to raise the
cash rate by 50 bps, present a significantly steeper track for 90 day bill yields over the forecast period, and
accompany that with a bearish statement.
HLFS:::::::::::::::::::: Employment:::::::::: Unemployment
(s.a.)::::::::::::::::::::::::::::::::::::::::::::: Rate
:::::::::::::::::::: qoq. %::::: ann. %::::::::::
Jun-98::::::::::::::: -0.6::::::::::-1.0:::::::::: 7.6
Sep-98::::::::::::::: 0.1::::::::::-0.8:::::::::: 7.4
Dec-98::::::::::::::: 0.1::::::::::-0.7:::::::::: 7.7
Mar-99::::::::::::::: 1.0:::::::::: 0.5:::::::::: 7.2
Jun-99::::::::::::::: 0.1:::::::::: 1.2:::::::::: 7.0
Sep-99::::::::::::::: 0.3:::::::::: 1.5:::::::::: 6.8
Dec-99::::::::::::::: 1.4:::::::::: 2.7:::::::::: 6.3
Source: DB Global Markets Research, Statistics NZ
Ulf Schoefisch, Chief Economist, New Zealand
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