Data Flash (New Zealand)
Key Points
Employment was unchanged in Q1 following a revised increase of 1.0% qoq in Q4. The level of employment was 2.3% higher
than a year earlier. This result was close to the median market expectation of +0.1% qoq.
Fulltime employment rose 0.8% to be 3.2% higher than a year earlier. Part-time employment decreased by 2.5% qoq to be
0.8% lower than a year earlier.
On an industry basis, strong growth was recorded in the manufacturing sector, rising 3.7% qoq. This was offset by lower
employment levels in the business and financial services sector (partially reversing very strong growth in Q4). Sector
data is volatile and should be treated with caution.
On a regional basis, strong employment growth was recorded in Gisborne-Hawkes Bay, the upper South Island and Southland.
The unemployment rate in Southland was just 2.8% in Q1.
The number of total hours worked rose 2.8% after falling a revised 0.2% qoq in Q3, to be 5.5% stronger than a year
earlier. The extreme volatility of this data means that quarterly data should be interpreted with caution. The
unemployment rate fell to 5.4% (from 5.6% in Q4). This is the lowest unemployment rate since June 1988 when 5.2% was
recorded. The participation rate decreased to 65.6%, from the 65.8% recorded in Q4 (the latter a 5-year high).
Market Reaction
The June bill contract sold off 4 ticks following the release of the data as the market assessed a lower likelihood of a
50bp easing on 16 May. We agree with the market's response.
Comment
Following two quarters of very strong growth, employment levels were broadly unchanged in Q1, a conclusion supported by
yesterday's Quarterly Employment Survey (QES). Given strong employment growth in H2 2000 and below potential growth in
GDP, some consolidation in employment levels was to be expected over H1 2001 as firms seek to boost productivity.
The strong hours worked result tends to suggest that Q1 GDP growth will be robust, consistent with our preliminary
estimate of +0.8% qoq (up from 0.5% qoq in Q4). The hours worked data is very volatile and needs to be treated with
caution. Yesterday's QES had suggested a small fall in hours paid. However, the QES series is not comprehensive and does
not capture unpaid overtime by salaried workers. In addition, the NZIER's measure of capacity utilisation recorded a
strong rise in Q1, more consistent with the HLFS result.
The labour market has continued to tighten. The fall in the unemployment rate to 5.4% is consistent with the further
rise in surveyed measures of skill shortages and with the strengthening trend in wage growth reported in yesterday's QES
and Labour Cost indexes.
As the charts above suggest, going forward labour market indicators remain quite positive.
The ANZ's job ads series has reported positive growth in each of the first three months of this year and remains at a
historically high level. The April installment is due to be released tomorrow.
The QSBO measure of employment intentions remains consistent with positive levels of employment growth, as does the
equivalent measure from the National Bank's Business Survey.
Looking ahead, as was the case with yesterday's QES, today's release supports the case for a 25bp cut in the OCR on 16
May, as the RBNZ seeks to balance the considerable risks of weaker than expected growth in global activity and stronger
than expected inflation pressures. Thus we continue to hold the view that the RBNZ will very likely deliver a 25bp cut
next week, a view shared by the majority of the market. But to the extent that a surprise is possible, we think that the
possibility of no cut in rates (the decision taken by the RBA in early May) is at least as likely as the 50bps suggested
by a minority of analysts.
Darren Gibbs, Senior Economist, New Zealand, (64) 9 351-1376