New Zealand's economy "appears to be hitting the wall" in terms of employment growth, according to Westpac economists.
In Westpac's Weekly Economic Commentary, acting chief economist Michael Gordon said a "downside surprise" in the latest labour market figures was the fact that in the June quarter 2022 there was zero employment growth for the third quarter in a row.
"That was accompanied by a further drop in the labour force participation rate. This illustrates another tension in the New Zealand labour market – with the migration tap having been largely turned off in recent times, the prime working-age population is ageing and shrinking. All of the growth has been in the over-65s, who have a much lower participation rate (although high by world standards)."
So, as a result, the NZ economy appears to be hitting that wall on employment growth. Gordon said that might seem strange when we still have more than 90,000 people actively looking for work, and we know that businesses across the board are "crying out" for more workers.
The unemployment rate rose slightly to 3.3% in the June quarter, up from the record low figure of 3.2% in both the December 2021 and March 2022 quarters.
"The reality is that even in a booming economy, there will always be some level of unemployment at any point in time," Gordon says.
"This may be people who are between jobs and are in the process of searching, or it may be people who have the wrong skills or are in the wrong location relative to where the demand is. The structure and regulation of the labour market can greatly affect where that baseline level of unemployment lies, but even in the best circumstances it’s going to be some way above zero.
"It may be that New Zealand is finding where that floor lies. While there is a great deal of hiring going on, employers are tending to attract people from the existing pool of workers, with no net growth in the number of jobs. Instead, all of the heat in the labour market is coming through in pay rates."
ANZ economists also see the job market having effectively hit a stalemate. In their latest NZ Weekly Data Wrap the ANZ economists say it’s looking like the domestic labour market has "simply reached the limits of its ability to match job seekers with vacant positions" (eg due to skills or geographical mismatches).
"For hiring managers, this means it will likely remain incredibly challenging to find staff – but that may not be reflected in the headline unemployment figure," they say.
While the headline labour market numbers may have been "a tad disappointing" relative to expectations (albeit still extremely solid in absolute terms), wages "blew everyone’s forecasts out of the water", the ANZ economists say.
"Private sector average hourly earnings growth rose a whopping 7.0% [year-on-year] – far higher than the 5.6% print the RBNZ expected. So we find ourselves giving a ‘hawkish surprise’ label to a labour market report where unemployment came in 0.5 [percentage points] above our expectation.
"In a very short period of time wage growth has accelerated to almost catch up with CPI inflation (currently running at 7.3%). And it’s very likely that private sector wage growth will be running ahead of inflation in the September quarter (ie right now)," the ANZ economists say.
Westpac's Gordon said the details of the pay data showed that pay increases are becoming more widespread. Two-thirds of all jobs received a pay increase in the last year, the highest proportion going back to 1991.
"It’s also worth noting the reasons that employers cite for giving pay rises. Cost of living adjustments are no more or less common than usual. Instead, the lift in wages has increasingly been around the need to match market rates and retain staff. In other words, wage inflation has been due to the demand-pull of intense competition for a fixed pool of workers, not the cost-push of rising living costs."
Gordon said on balance, the labour market data suggests "that demand-side forces are playing an even stronger role in inflation than we thought". And that in turn implies that more of the burden of adjustment lies with the Reserve Bank.
The Westpac economists have revised their forecasts and now expect a peak in the Official Cash rate in this cycle of 4%, up from their previous pick of 3.5%. ANZ economists also think the OCR will peak at 4% before the end of this year.
"Curiously, this means that we’ve traded places with financial markets, which not that long ago had been pricing in a peak OCR of more than 4%," Gordon said.
"However, recession concerns have dominated global markets in recent weeks, driving market interest rates sharply lower, and the New Zealand market has followed along. The market is now pricing a peak OCR of around 3.75% by the end of this year, turning to rate cuts from August next year.
"We think that’s far too early for the RBNZ to be turning tail, when the inflation challenge that it faces is coming increasingly from more persistent sources."
The ANZ economists say surging wages sound like great news for working Kiwis and are undoubtedly a relief for households who have been watching their real purchasing power fall.
"But if you’re a central bank with a 1-3% inflation target, while core inflation measures are 5-6%, this report is deeply concerning. Rapidly rising wages (not backed by higher productivity) only reinforce the risk of a wage price spiral. It’s clear that with labour demand still insatiable, high inflation is being incorporated into wage and price-setting behaviour.
"The fact is, higher wages are taking the edge off the squeeze that current mortgage rates are delivering – and the RBNZ is on a mission to squeeze households. We continue to expect the OCR will reach 4% by year-end.
"But the 'neutral' OCR is clearly lifting as the economy inflates (in 2006, with similar household debt/income levels and much lower CPI and wage inflation, the RBNZ’s estimate of neutral was low-5%s!).
"Accordingly, the risk is clearly that 4% may not be the end of it for the OCR, for all that we fully expect momentum to turn soggy by year-end," the ANZ economists say.
62 Comments
If only there was some well tested mechanism utilised and incentivised within all other first world economies - lets hypothetically call it automation - that NZ companies could invest capital into in order to improve productivity per worker that wasn't hugely inflationary!
Oh well...
No, it isn't. One is improving a process, input or output. The other is just sacking people to achieve a number. Many people seem to think one is a valid replacement for the other - they tend to be the short-term job-hopping types who don't stick around to see the damage they end doing.
So in other words, shift the burden of actually paying people to the taxpayer, import what you would have otherwise done yourself and then flog yourself until you believe that 'everyone' is somehow better off under this situation?
After all, they get more spare time right, and who doesn't love spending more time with their families?
Automation done right means we need to put in fewer human hours to achieve our needs. Sounds like a good thing to me.
The crazy thing is our wants have increased to fill any resulting gap rather than banking the gains and moving to 4-day or 3-day standard working weeks.
We don't have the industry-mix, infrastructure and skilled workforce to adopt such advanced technologies at scale enough to move the needle on economic productivity.
Also, too many migrants have entered NZ in recent years to participate in the non-export economy and therein lies a massive problem around economic competitiveness.
Agree, that the mix is not currently suitable (mostly due to incentives being poorly directed towards legacy thinking), but sitting on our hands and importing more cheap labour isn't the answer either. Automation and creating a skilled workforce that can both command higher wages and produce higher / more valuable outputs per worker - ideally with reducing material and energy inputs - is.
The state needs to be activist and, dare I say it, start picking winners to drive economic output up to and including taking a stake in developing business sectors and ensuring the state buys goods and services from them - exactly as every other developed economy does - rather than shrugging and continuing with the demonstrably false orthodoxy that 'the market' will magically fix things all by itself.
start picking winners to drive economic output
Tourism and film production already receive hundreds of millions in taxpayer funding and dairy got carved out of ETS despite being a major polluter in NZ and central bank policies are heavily influecned by bank lobbies.
...which is a huge problem, and one that is easily fixed.
Tourism is a labour-focused well developed sector, that already recieves significant benefit from externalities (i.e. they don't pay for the views as an input) and shouldn't receive any handouts. There are literally entire sections of government associated with boosting tourism. They don't need more help.
The film sector is very similar - vast sums being handed out for very little aggregate economic benefit, in an industry that's a race to the bottom when it comes to production.
Ironically, the gaming industry which will soon surpass film exports (if it hasn't already) yet receives sweet FA in terms of incentives. I guess though that's because pollies can't get their jollies by red-carpeting / big-noting / hob-nobbing with game designers.
I truly despair. This is not complicated. Higher costs of living are reducing disposable incomes. Sectors that are vulnerable to reduced disposable income are seeing less income so they are hiring less staff and requiring less hours from those staff. For example, quarter 2 hours worked in construction were 7% lower in than in quarter 1, retail hours were down 6%, accommodation and food services were down 2% etc etc.
What really winds me up is that these same bank economists have been screaming for interest rate rises to achieve exactly these demand reductions. The least they could do is recognise the connection!
Having a problem finding qualified staff? See; another reason why:
The madness of Māori mechanics
https://youtu.be/kIsmBZ8Erqs
What a bitter loser the guy in the video is, Te Reo is an official language and undergoing huge growth. I have nieces and nephews whose first language is Te Reo. Of course they can speak English, but why should they if they choose not to? This student may be the first, but he won't be the last and it will not be wasted effort. Maori have always had to come up with words - just like the English do,
You're going to be left behind wallowing in your bitternes Fortunr. Also, kapai to those below defending Te Reo
What a ridiculous thing to get upset about, that guy seems like a complete loser. Te Reo Maori is one of three official languages in this country, so someone who fluently speaks Maori should be able to sit exams in Maori if they want to. Not having a native word for something like carburettor is hardly unique to Maori either, check out the amount of loan words in Japanese for example, or the amount of French words we use in English. What an ignorant loser.
Yeah, theres one more trained automotive mechanic out there in the workforce. The idiot in the video wasn't saying the quality of their education was any worse than someone trained in English, he was saying it's ridiculous that they were allowed to sit an exam in Maori. This is a good news story for employers wanting to find staff.
I don't think anybody is questioning people's ability/right to sit exams in Maori.
The concern is the Maorification of polytechnics and spending academic resources, time and money on studying whether there is a Te Reo Maori word for carburetor - spoiler alert, there's not!
Promoting and implementing Maorification is often an exercise of manufacturing demand and therefore hugely wasteful as polytechnics are suppose to deliver skills.
I would NOT work for or contract to businesses, governments or councils that require me to participate in pagan ceremonies or cultural awareness talkfests.
I understand people enjoy these things. I suppose as a private business it's your choice - sink, swim, be sued, you take the risk. As for government agencies and educational institutes forcing Maorification and perhaps pagan practices - it's certainly concerning.
What are polytechnics called these days? It's a Te Reo Maori word(s) few know:
- Good luck getting students
- Good luck getting an education
The education resources seem to be directed into signage, branding and Maorification.
The concern is the Maorification of polytechnics and spending academic resources, time and money on studying whether there is a Te Reo Maori word for carburetor - spoiler alert, there's not!
There isn't one in Japanese either, they just call it a carburettor. It doesn't seem to have hindered their automotive industry, either. You keep saying polytechnics are supposed to deliver skills; noone has claimed this student is any less skilled than any other student - they just sat a test in a different language. Sounds like the polytechnic has done it's job to me.
Connecting Māori to their culture (speaking the language, applying cultural practices) that is normalised for Māori people in their everyday work and play will significantly create a talent pool of employees and employers. This will not be a short-term thing but a long-term one that benefits everyone living in NZ.
You might be right..
So what percentage for students at polytechnics speak fluent Te Reo Maori?
Does that percentage justify the Maorification of academia/polytechnics?
Can learners choose to be free from Maorification, paganism and woke agendas in government funded education OR is it now the default - baked in the cake?
I expect it's somewhat easier to avoid than Westernization was/is for the Maori. It's within living memory that Maori speakers were beaten for using their language at school, I don't think that's being proposed for English speakers just yet.
The easiest way to avoid the culture of this land would be to live elsewhere.
What happened to multiculturalism? Nothing - it's here and developing. You clearly aren't into Maori culture having any significant part in our society though, and the best way to avoid it would be to move to a country that wasn't inhabited by Maori for hundreds of years before Europeans arrived. I'm afraid it's likely to pop up in your day-to-day life here.
I would NOT assume ALL Maori people have a homogeneous culture called "Maori culture".
Many traditional Maori practices are antithetical to beliefs/values held by modern-day-people of Maori decent, especially those of various religious faiths.
I personally would NOT box people in with the term "Maori culture".
Me neither...not sure what you're getting at here? I'm aware different groups have different beliefs and traditions, all coming under an umbrella term 'Maori'. Like how the culture in Glasgow is different to that in rural Cornwall but I can call them both 'British' culture.
Ah, so your concern is that there are only a few Maori speakers? New Zealand Sign Language is the third official language of New Zealand. There are only about 7,000 profoundly deaf people in New Zealand - they are an extreme minority. I assume that in your eutopia if a deaf person wanted to take an oral exam, the examiner should just shout at them very loudly - this would certainly save the poor taxpayer the cost of having an NZISL interpreter.
So what percentage for students at polytechnics speak fluent Te Reo Maori?
Does that percentage justify the Maorification of academia/polytechnics?
It is clear from the use of the word "justify" in the quoted sentences that you think the use of a particular language needs to be justified based on the amount using that language, and not based on the fact that it is an official language in this country.
You're the only one ranting about Maorification, that isn't a term I've ever heard of before. Why don't you go ahead and explain how a student being allowed to take a test in Maori isn't about recognising one of the three official languages in this country, but is actually about some other thing you've just made up.
In answer to your question, I'm happy to repost my comment:
"I don't think anybody is questioning people's ability/right to sit exams in Maori.
The concern is the Maorification of polytechnics and spending academic resources, time and money on studying whether there is a Te Reo Maori word for carburetor - spoiler alert, there's not!
Promoting and implementing Maorification is often an exercise of manufacturing demand and therefore hugely wasteful as polytechnics are suppose to deliver skills.
I would NOT work for or contract to businesses, governments or councils that require me to participate in pagan ceremonies or cultural awareness talkfests.
I understand people enjoy these things. I suppose as a private business it's your choice - sink, swim, be sued, you take the risk. As for government agencies and educational institutes forcing Maorification and perhaps pagan practices - it's certainly concerning.
What are polytechnics called these days? It's a Te Reo Maori word(s) few know:
- Good luck getting students
- Good luck getting an education
The education resources seem to be directed into signage, branding and Maorification."
In a very short period of time wage growth has accelerated to almost catch up with CPI inflation (currently running at 7.3%).
We keep getting unchallenged nonsense. Wages keep up when the net after tax pay meets inflation. Even then,the inflation of living costs for the lower quartile pay group will be way north of a "7% inflation experienced" . Maybe double that. So real disposable incomes are falling fast.
This illustrates another tension in the New Zealand labour market – with the migration tap having been largely turned off in recent times, the prime working-age population is ageing and shrinking.
Most OECD countries will have to learn to do more with fewer workers. Productivity in New Zealand has been appalling for as long as it's been measured so even catching up to the rest of the OECD would take pressure off businesses. Higher wages will drive that process.
Modern work - esp. white-collar work - has become extraordinarily specialised. At least in the eyes of HR specialists, who seem to balk at hiring anyone without multiple years of experience using whatever specific piece of software or methodology their niche demands.
I wonder if this is playing any part in the friction in the labour market.
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