New Zealand: wage growth accelerated in 3Q
• Private sector labour costs surged 1.1%q/q
• All sector labour costs increased 1.2% q/q
• Unemployment rate expected to rise
Growth in private sector labour costs (as measured by the LCI) in New Zealand rose a stronger than expected 1.1%q/q in
3Q (JPMorgan 0.7%, consensus 0.8%) after rising 0.8% in 2Q. The all sector labour cost index grew 1.2%q/q (JPMorgan
0.7%, consensus 0.8%), well above the 0.7% rate in the previous three months.
The acceleration in wage growth was surprising given labour market conditions have eased this year. Firms have been
shedding human capital in a bid to cut costs as economic momentum has stalled. It appears, though, that employers have
had to succumb to demands for higher wages as workers continue to battle with elevated food and petrol prices.
We do expect that further softening in labour market conditions will weigh on wage growth. Additional job insecurity and
redundancies will mean that workers probably will continue to curb spending, weighing even further on the economic
growth outlook. The Kiwi economy already has endured a technical recession, but downside risks to economic growth have
become more acute in recent months. We expect another three quarters of negative growth in New Zealand.
The next key piece of labour market data is the employment print on Thursday. We expect employment growth will contract
0.5%q/q in 3Q, helping to push the unemployment rate up from 3.9% to 4.3%.