Data Flash (New Zealand)
Key Points
Employment increased 1.2% qoq in Q3 following a revised decline of 0.1% qoq in Q2. Average market expectations had been
for a rise of 0.1%.
The increase in overall employment was driven largely by a 1.8% rise in full-time employment. Part-time employment
increased 0.5%.
On an industry basis, around one-half of the growth in overall employment occurred in the Education and Health and
Community Services sectors ie sectors dominated by the Government. Strong growth was also recorded in the Wholesale and
Retail Trade sector.
On a regional basis, growth in Auckland accounted for around one half over the overall growth in employment. Solid gains
were also recorded in the lower North Island and in Canterbury.
The number of total hours worked rose 2.8% qoq after rising 0.4% in Q2. The extreme volatility of this data in recent
quarters means that this data should be interpreted with particular caution.
The unemployment rate fell to 5.9% in Q3 (from 6.1% in Q2). This is the lowest rate recorded since 1988. The
participation rate increased to 65.5%, more than reversing the previous quarter's sharp fall.
Market Reaction The short end sold off 2-3 ticks following the release of the data. The NZD initially strengthened by
around 20pts, but subsequently retraced most of these gains.
Comment Recent HLFS data has been quite volatile and should be treated with some caution. Notwithstanding the fact that
the broad thrust of the data is consistent with our relatively optimistic outlook for the economy, we are somewhat
sceptical that employment grew by 1.2% qoq in Q3. The Q3 Quarterly Employment Survey (due 15 November) will take on
added importance as we look for confirmation of today's HLFS outcome.
Nonetheless, even if one discounts the strength of the latest outcome to some extent, it does seem likely that the
economy has performed more strongly in Q3 than some commentators have been suggesting.
If confirmed by the Quarterly Employment Survey, strong growth in service sector employment will feed directly into
Statistics New Zealand's estimate of Q3 GDP. Therefore, today's outcome supports our view that the GDP will record
positive growth in Q3 (as discussed in our recent Economic Forecasts, our preliminary estimate is 0.6%qoq).
The fall in the unemployment rate to 5.9% - the lowest level for 12 years - exacerbates the risk that the near-term
spike in inflation will spill over into second round wage pressures.
We doubt that today's HLFS result, on its own, will be sufficient to convince the RBNZ to raise the OCR when it next
reviews monetary policy settings on 6 December. Much of the recent data concerning the household sector remains very
weak eg confidence, asset prices, and wage growth. Further evidence will be needed to convince the RBNZ (and the market)
that policy needs to be set on the basis of the strong economy/high inflation scenario outlined in the August Monetary
Policy Statement.
Today's outcome is likely to receive very favourable press coverage. As a result, consumer sentiment is likely to
receive a boost. This fits well with our assessment that indicators over coming months will point increasingly towards a
strengthening economy, driven by stimulatory monetary conditions, robust world growth and a gradual improvement in the
terms of trade (driven largely by our assumption of a reduction in oil prices).
The accumulation of positive economic indicators over the next four months, coming at time when inflation is already
moving above target due to high oil prices and the weak NZD, is expected to leave the RBNZ little option but to raise
the OCR by 25bps (or more) when it reviews monetary policy settings on 14 March 2001.
Darren Gibbs, Senior Economist, New Zealand, (64) 9 351-1376
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