Data Flash (New Zealand)
Key Points
Employment increased 1.1% qoq in Q4 following a revised increase of 1.3% qoq in Q3. The level of employment was 2%
higher than a year earlier.
Average market expectations had been for employment growth of just 0.2% qoq. This likely reflected expectations of
modest Q4 GDP growth and lingering doubts about the credibility of the strong Q3 HLFS result.
Both full-time and part-time employment increased by 1% qoq. On an industry basis, strong growth was recorded in the
service sector - especially in the `business and financial services' sector and `other services' sector. Somewhat
surprisingly, the wholesale and retail sector also recorded robust growth. Employment in the construction sector fell
sharply. On a regional basis, strong growth was recorded in Auckland, the lower North Island and Canterbury.
The number of total hours worked fell 0.5% after rising 2.5% qoq in Q3. The extreme volatility of this data means that
quarterly data should be interpreted with caution.
The unemployment rate fell to 5.6% (from a revised 5.8% in Q3). This is the lowest rate recorded since June 1988.
The participation rate increased to 65.9%, the highest rate recorded since 1996. The unemployment rate would have fallen
to 5.1% if the participation rate had remained unchanged at the previous quarter's level.
Market Reaction The short end of the interest rate curve sold off 7-10 ticks following the release of the data as the
market reassessed the likelihood of an easing as early as March.
Comment Although the relationship between tax data and wage and employment data is less than perfect, it is notable that
today's outcome is entirely consistent with tax data released yesterday: income tax receipts are running 5% ahead of
last year; employment is up 2% yoy; and we expect next Monday's Quarterly Employment Survey (QES) to reveal 3% yoy
growth in wages.
The market should take three key messages from today's outcome: The strong labour force outcome in Q3 can no longer be
discounted as an aberration, while strong employment growth looks to have continued into Q4 (Monday's QES will be looked
at closely for verification of this conclusion). The labour market has continued to tighten. The fall in the
unemployment rate to 5.6% suggests that the labour market is tighter than at any time since 1988. However, the fall in
long-term unemployment over the past year is likely to have been associated with a fall in the structural rate of
unemployment. This suggests that the extent of tightening may be somewhat overstated, although the skill shortage
indicator from the Quarterly Survey of Business Opinion suggests that the labour market is as least as tight as any time
since 1995. Therefore, an increase in wage growth is imminent, fuelled further by the fallout from current high level of
headline inflation.
Today's outcome is likely to receive positive media attention and reinforce the sharp rebound in confidence recorded
late last year. We expect the domestic economy to make a strengthening contribution to GDP growth as 2001 progresses.
This will help to offset any dampening in export growth due to the weaker global economy.
Notwithstanding the deterioration in global growth prospects and recent and prospective interest rate cuts in the US and
elsewhere, the RBNZ is unlikely to be in a hurry to ease policy settings in New Zealand. We think today's outcome
strengthens the likelihood that the RBNZ leaves the OCR unchanged on 14 March. And we think that further data released
over the next couple of days - including January instalment of the ANZ Job Ads series and Q4 wage data - will point in
the same direction.
Our current forecast for Q4 GDP is 0.5% qoq. Given an estimated 0.6% qoq decline in retail volumes and the likelihood of
further weakness in the construction sector, growth during Q4 is likely to be dominated by growth in net exports. The
strength of today's employment outcome suggests the possibility of some upside risk to our GDP estimate. This might
occur if we have overestimated the price contribution to recent growth in exports and/or underestimated the price
contribution to the recent growth in imports. The price/volume split will be known once the Overseas Trade Indexes are
published on 12 March
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