Unemployment has very surprisingly, risen to 3.4% from 3.3%, while private sector hourly wage growth has slowed to 8.1% from 8.6% when it was expected to rise.
The New Zealand dollar dropped by about a third of a cent against the US currency on the news, while wholesale interest rates dropped also. The clear implication for these movements is that 'the markets' are now seeing the prospect that our interest rates here may not now be hiked by as much in coming months as previously thought.
This data for the December quarter 2022 is according to Statistics New Zealand and is frankly so far from expectations that there will be questions as to whether this is a 'rogue' result. If it is not a 'rogue' then it indicates a significant turning point.
To be clear, the expectation is that the unemployment rate will rise this year. The Reserve Bank sees it reaching 4.8% by the end of this year. However, this rise has come earlier than expected. There were no indications ahead of time that the rate would rise.
The data matters because it will be a key input into the Reserve Bank's next decision on the Official Cash Rate to be made on February 22.
The RBNZ had previously indicated it would raise the OCR (currently 4.25%) by another 75 basis points but this data would cast a lot of doubt on whether that should be done. The marketplace will for sure be pushing for a smaller 50 point rise now, or even 25 point.
Indeed, BNZ economists were quick off the mark to say that in light of Wednesday’s labour market data, they had decided to lower their RBNZ February call to a 50 basis point hike (from 75).
"The weaker than anticipated Consumer Price Index [for December, which was an annual rate of 7.2% versus RBNZ expectations of 7.5%] increased the odds that we would shift in this direction but we feared that labour market data might suggest otherwise," BNZ head of research Stephen Toplis said.
"As it turns out, labour market figures were slightly on the softer side of our, and more importantly, the RBNZ’s expectations so we are responding accordingly.
"We have also lowered the peak in our cash rate track to 5.0%, from 5.5%, but we still do not believe the RBNZ will be easing until 2024."
ASB senior economist Mark Smith said the risks were now skewed towards the RBNZ having to hike the OCR by less than previously thought.
"The need for outsized OCR hikes also looks less urgent. We now expect the RBNZ will hike by ‘only’ 50bp in February, though it remains a fine line between that magnitude and a 75bp increase. We still expect a further fine-tuning hike of 50bp in April, to an OCR peak of 5.25%.
"With the greater potential for the labour market to loosen, we also expect the RBNZ will eventually cut the OCR from Q2 [second quarter] 2024, a few months earlier than previously forecast," Smith said.
The RBNZ had expected unemployment to drop to 3.2% and this was widely expected among other economists too.
On wages, the RBNZ had expected the private sector hourly growth to increase to 9.1% - but it has come in at just 8.1%.
Taken at face value these actual results would suggest that the huge interest rate hikes the RBNZ has already made are starting to have significant traction and perhaps earlier than expected.
Among the details of Wednesday's data release from Stats NZ, the 'underutilisation rate' — a broader measure of spare labour capacity which includes those unemployed, underemployed, and the potential labour force — rose to 9.4%, from 9.0% in the September quarter.
In the December 2022 quarter, the labour force 'participation rate' remained at 71.7% and the employment rate remained at 69.3%. Both remain the highest rates recorded since the Stats NZ began this particular data series - the Household Labourforce Survey in 1986.
In the December 2022 quarter, there were 4,000 more employed people, up to 2,855,000. Annually, employment increased 1.3%
In its media releases on Wednesday Stats NZ noted that: the Household Labour Force Survey (HLFS), Labour Cost Index (LCI), and Quarterly Employment Survey (QES) "continue to experience data collection challenges".
"These resulted in lower response rates than originally designed for in the December 2022 quarter. Despite lower response rates, we remain confident that the data is fit-for-purpose for New Zealand’s official labour market measures."
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