New Zealand unemployment rate rises, but not all bad news

New Zealand unemployment rate rises
But, it is not all bad news

The New Zealand unemployment rate jumped to 6.7% in Q1 2012, up from a revised higher 6.4% in Q4 2011. The rise went against market expectations centred on 6.3%. But, it is not all bad news. The rise mostly reflects a pick-up in the participation rate rather than any weakness in employment growth which actually increased in Q1. More importantly, the data suggests that the Canterbury rebuild could be gathering stream with construction representing the largest increase in employment in the Canterbury region in the quarter.

Facts
• The unemployment rate rose to 6.7% in Q1 2012, from a revised higher 6.4% in Q4 2011 (consensus was 6.3% while HSBC had 6.2%).

• Total employment increased by +9,000 jobs (+0.4%) in Q1 and by +0.9% y-o-y.

• Full-time employment fell by -3,000 jobs (-0.1%) in Q1, while part-time employment rose by a strong +13,000 jobs (+2.5%) – the third consecutive quarterly rise. In annual terms full-time employment was soft (-0.4%), whereas part-time employment increased +5.4%.

• The participation rate rose to 68.8% in Q1 2012 from 68.2% in Q4 2011. This is the second highest participation rate since the series peak of 69.1% in Q4 2008.

• Actual hours worked remained relatively flat, up +0.1% in the quarter and partly reflecting the fall in full-time employment and the rise in part-time employment.

• Earlier in the week, the labour cost index for Q1 2012 showed that wages growth across the economy remains contained. In annual terms, wages grew by +2.0%, and follows a similar increase in the year to December 2011. Private sector salary and wage rates increased +2.1% y-o-y, the highest annual increase since June 2009. In contrast, public sector rates rose by a softer +1.6% for the same period.

Implications
While the shock rise in the unemployment rate to 6.7% appears on the surface to be negative, if we look at the main driver for the increase, the story is much more encouraging.

The main culprit is the 0.8ppt rise in the participation rate during the quarter. Employment was actually solid, increasing by +9k jobs – more than double the growth observed in the previous two quarters!

Nevertheless, there remains a clear disparity between full-time and part-time employment. While the former posted a second successive decline in Q1, the latter appears to be going from strength to strength. Indeed, Statistics New Zealand estimate that in Q1 the number of people in part-time employment reached its highest level since the series began in 1986. This shift in the nature of employment could have implications for household incomes over the medium term.

Looking forward, some tentative signs suggest that the Canterbury rebuild may be getting underway with solid rises in construction employment in the region.

Wages data published earlier in the week shows that wages continue to grow at a modest rate and pose little threat to the inflation outlook. However, some pressure appears to be building in the construction sector in Christchurch though. Statistics New Zealand estimates suggest that on a range of measures, wages growth was significantly higher there than nationally in the year to March 2012.

So it is not all bad news and the New Zealand labour market is in better shape than the headline unemployment rate suggests. We continue to expect modest growth to take place this year.

Bottom line
The unemployment rate jumped to 6.7%, though this primarily reflected a rise in participation.

The solid construction employment growth in the Canterbury region is encouraging and provides some evidence that the recovery might be getting underway.

We still expect the RBNZ to remain on hold in H1 with a risk that it may remain on hold for an extended period of time given its concerns about the impact the high NZD is having on the economy.

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ENDS

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