New Zealand unemployment rate rises to 3.6% in 1Q

New Zealand unemployment rate rises to 3.6% in 1Q

New Zealand's unemployment rate rose in 1Q to 3.6% (JPMorgan 3.6%, consensus 3.5%) from 3.4% in 4Q. The employment print confirmed our expectation that the Kiwi labour market has started to loosen, with employment now at levels seen in early 2007. Employment growth contracted 1.3%q/q in 1Q (JPMorgan -0.3%, consensus -0.1%), after rising 0.9% in 4Q.

Large slowdowns in job growth were recorded in mining (-10.4%), hospitality (-8.7%), property/business (-4.1%) and wholesale/retail (-4.1%). These falls broadly reflect the softness in consumer spending and the rapidly deteriorating housing market. More generally, though, with business confidence recently plunging to 17-year lows amid soaring petrol prices and tighter credit conditions, companies are becoming more reluctant to hire new workers.

But, although the labour market will continue to loosen as firms shed human capital to cut costs as economic momentum slows in coming quarters, labour market conditions remain at historically tight levels. The Kiwi labour force continues to lose skilled workers abroad, keeping the pool of available workers low. This means that tight labour market conditions will keep upside pressure on inflation, alongside high commodity prices, elevated energy and food prices, and the fiscal stimulus in the pipeline. Therefore, with inflation forecast to remain above the RBNZ's 1-3% target range, there will be little scope for the RBNZ to ease monetary policy anytime soon.

The details:

* Seasonally adjusted employment fell by 29,000 in 1Q.

* The seasonally adjusted unemployment rate rose from 3.4% to 3.6%.

* The labour force participation rate decreased 0.9 to 67.7%.

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