Unemployment rate drops back to historic low of 3.6%
(See... Full release with graphs (PDF))
New Zealand's labour force survey posted a stronger than expected 0.7%q/q gain (14,000 positions) in employment in 2Q
(JPMorgan 0.2%, consensus 0.3%), after a rapid 1.2% spike in 1Q. The continued momentum in employment growth took the
unemployment rate back to an equal record low 3.6% (JPMorgan and consensus 3.7%) from a downwardly revised 3.7%
(previously 3.8%) in 1Q. New Zealand's unemployment rate has been bouncing off the record low since it first hit 3.6% in
3Q05 (chart). The labour force participation rate hit an all-time high of 68.8%, as the growth in the size of the
workforce outstripped growth in the working age population.
The Government's Working for Families package, which encourages both welfare beneficiary and working families to work
for tax credits, is impacting supply. The supply of part-time employment in the survey has increased, pushing up the
level of participation, and reducing the unemployment pool. The increased labour supply is being met by demand, however,
as employers are becoming increasingly willing to take on part-time workers - the casualisation of the work-force
continues.
On the outlook for interest rates, the risk of yet another policy tightening over the next six months has risen. Today's
employment report in isolation is not enough to push the RBNZ across the line in September, but it does support an
already uncomfortable nontradables inflation trajectory, which remains pegged in the top half of the RBNZ's 1-3%oya
target range. The report shows that the macro environment in New Zealand remains one of stretched resources, a
drum-tight labour market, and continued inflation pressure in the pipeline. Such an environment will keep the RBNZ at
action stations, as the war on inflation rages on.
It is important to note that we have had four policy tightenings since March (the last was in July), and this report was
for 2Q. The RBNZ has time on its side to access the impact of their recent policy response on economic activity. The
housing market, for example, is beginning to show signs of turning, and the forward looking indicators (various
confidence surveys) are softening.
Financial market reaction: NZD bounced 25pts after the release
ENDS