Australia Economic Research
New Zealand's unemployment rate posts largest fall since 1986
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New Zealand’s unemployment rate posted a remarkable fall in the March quarter. The key rate dropped from a revised 7.1%
in 4Q to just 6.0% in the first three months of the year, marking the largest drop since 1986 and the first fall in
unemployment in the Kiwi economy in more than two years. J.P. Morgan and the market consensus expected the unemployment
rate would have remained unchanged at a decade high 7.3%. The tumble in the jobless rate can be largely explained by the
1.0%q/q increase in employment, which marks the first rise in five quarters, as the participation rate held steady at
68.1%.
There were significant seasonal factors at play, however. Statistics New Zealand (SNZ) said that the fall of 25,000 in
the number of people unemployed in 1Q was “atypical.” According to the Statistics agency, “typically in the March
quarter, temporary employment associated with the Christmas and New Year period and seasonal agricultural activity
declines, and unemployment increases. But this March quarter we have seen an unexpected fall in unemployment,
particularly among young men, which is accentuated when seasonal influences are removed.”
Indeed, during the March quarter, unadjusted employment tends to fall, but the decline this year was not as large as
usual. While seasonally adjusted employment was up 1.0%q/q, unadjusted employment was down 0.2%. The discrepancy between
the two measures was largely a reversal of the previous quarter. In 4Q, seasonally adjusted employment was flat, while
the unadjusted data showed a 1.5% spike. Given that seasonal factors were a major factor pushing employment down in 4Q
and up in 1Q, one may suggest that unemployment in original terms was fairly stable at some intermediate point (say
6.5%) over the last six months, rather than fluctuating sharply between 6.0% and 7.1% as the data suggests.
The unemployment rate is unlikely to head below 6.0% in the foreseeable future, however. The NZIER quarterly surveys
have showed that hiring intentions have turned marginally positive, but actual hiring is still below long-run averages
and, with corporate profitability having fallen in 1Q, any significant pickup in new hiring may be delayed. That said,
it is hard to ignore the remarkably positive nature of today’s employment numbers.
As flagged in our commentary earlier on the speech delivered by Governor Bollard today, we acknowledged the significant
risk that the RBNZ will kick-off the next tightening cycle as soon as June. The start of the next tightening cycle,
which the RBNZ has signaled will be “in coming months,” will depend on how the economic data evolves. There is ample
economic data due for release ahead of the June OCR announcement. The upcoming data on house prices, retail sales,
confidence, and inflation expectations will be closely watched, and will determine whether the RBNZ starts the
normalization process in June or July.
ENDS