Kiwi labour market remained strong in 2Q
Employment in New Zealand rebounded 1.2%q/q (26,000 persons) in the June quarter (JPMorgan 0.3%, consensus 0.2%) after
contracting 1.2% (28,000 persons) in the previous three months. On this evidence, labour market conditions remained firm
despite a rise in the unemployment rate from 3.7% to 3.9%. The participation rate unexpectedly shot up from 67.7% to
68.6% - this probably is more noise than signal, as it reverses the big drop in the previous quarter.
Employment rebounded across most industries, with big gains reported in electricity (+8.6%), education (+8.6%), and
property/business (+4.3%). The only falls recorded in job growth were in the agriculture (-7.0%), mining (-12.3%), and
manufacturing (-4.7%) sectors.
With business confidence at 17-year lows amid soaring petrol prices and tighter credit conditions, many companies will
be reluctant to hire new workers going forward. Firms will continue to shed human capital to cut costs as economic
momentum slows, meaning employment growth probably will moderate in coming quarters. That said, the migration of skilled
labour abroad will keep the pool of available workers low, curbing the rise in the unemployment rate.
In recent commentary, RBNZ Governor Alan Bollard said that “The weaker economy is expected to reduce pressure on
resources, making it more difficult for firms to pass on costs and for higher wage claims to be agreed.†Amid such
expectations, despite that inflation remains above the RBNZ’s 1-3%oya target range, we expect a further three rate
cuts this year to help prop up the Kiwi economy, which currently is in recession. Our forecast calls for the OCR to be
7.25% by year-end.
The details:
• Seasonally adjusted employment rose by 26,000, or 1.2%q/q.
• Full-time and part-time employment rose 1.0%q/q and 1.6%, respectively.
• The seasonally adjusted unemployment rate rose from 3.7% to 3.9%.
• The labour force participation rate rose 0.9% to 68.6%.