Some economists say the chance of an Official Cash Rate (OCR) hike has increased after Wednesday’s labour market data came in stronger than expected.
Employment in New Zealand held fairly firm throughout 2023 despite rising interest rates, a slowing economy, and record net migration.
The unemployment rate rose just 0.1% percentage points in the last three months of the year from 3.9% to 4%. This was below consensus expectations of around 4.3%.
Other employment metrics also weakened but not to the extent some were expecting.
Henry Russell, an economist at ANZ, warned this could prompt the Reserve Bank of New Zealand (RBNZ) to lift the OCR from 5.50% to 5.75% at its next review on February 28.
“A 25 basis points hike later this month has become a very real possibility, and RBNZ Governor Orr’s speech on 16 February could raise the market-perceived probability of a hike further,” Russell said.
One-in-five chance
Market traders were pricing in a 20% chance of an increase by midday Wednesday, up from just 5% prior to the data release.
At the last RBNZ meeting in November, the Monetary Policy Committee signalled it would not be willing to tolerate any upward surprises in economic data.
Inflation had been above target for too long and the committee was impatient to get it back to the 2% midpoint without any further delays.
While economic data was moving in the right direction overall, there had been small surprises on consumption, non-tradable inflation, and now labour data as well.
Russell said the RBNZ could interpret this as being enough to trigger the rate hike it warned was possible late last year.
“That said, today’s data have not materially changed our labour market outlook and we continue to expect a rapid loosening in the labour market across 2024, taking the unemployment rate to over 5%”.
Right direction, too slow
Michael Gordon, an economist at Westpac NZ, said the unemployment rate was a valuable real-time indicator of how hot the economy has been running.
The RBNZ has been watching to see if an OCR of 5.50% had slowed the economy enough to bring down inflation. Statistics NZ's Consumers Price Index put annual inflation at 4.7% in the December quarter.
“And while activity is clearly cooling, the unemployment rate suggests that they haven’t made as much progress as they would have hoped at this point,” Gordon wrote in note.
Westpac said stronger data was more likely to delay rate cuts than prompt an increase to 5.75%.
Stephen Toplis, head of research at BNZ, said it was worth asking whether the RBNZ might actually hike the OCR after all.
“We have been warning that the chance of a February rate hike was non-zero. That non-zero chance has now got a little bigger,” Toplis said in a note.
Leaders at the central bank had downplayed the significance of downside data surprises in gross domestic product and the consumer price index.
“It’s difficult to imagine that [labour data] will be downplayed given they support the RBNZ’s general sense of nervousness about the economy’s inflationary outlook," Toplis added.
Like Westpac, BNZ stuck with its prediction that the central bank would leave the OCR unchanged in February but retain its hawkish bias.
Gareth Kiernan, chief forecaster at Infometrics, said he expected unemployment to rise to 5% in the second half of 2024, which would allow for OCR cuts to begin in August.
“With the unemployment rate back to a neutral level of 4%, the key for the Reserve Bank now is to see a more definite easing in labour cost pressures, to give the Bank confidence that lingering wage growth will not lead to more persistent inflation during 2024/25”.
58 Comments
when was a boom cycle not followed by a bust cycle? The more we prolong the boom, the bigger the bust. we boosted the heck out of the last boom so we have to expect a bulky and long bust...
And the ruling elite is hardly likely to want any pain during a bust cycle... it always flows downhill.
A tight labour market is a good omen for mortgagors (i.e. borrowers) and, indeed, for housing market buoyancy…..
Housing market recovery will continue - albeit the ride will be bouncy.
Prudent property owners/investors with a longer term outlook will continue to thrive and prosper.
TTP
A tight labour market is a good omen for mortgagors
TTP almost half of 2022 you were on here bleating about how prices were only going up, and the falls would stop any moment now. "Resilience this, resilience that. But you already knew that." When you were proven wrong for about 9 months straight, you disappeared from the comments section, only to reappear last year during the bull trap claiming the bottom had been and gone, best buy now. Now you've changed your tune to this new "patchy" or "bouncy" claim to cover your bases as the support (mostly arousal over immigration numbers taking rental yield from 3.5% to 3.65%) falls away again.
It's my opinion that the worst of it is still to come, how the housing market will fare in this environment is anyone's guess, and my guess is not that great.
I see a number of high influence property investors making reels and tik toks claiming "this is the year of the property investor." - pahleeeze.
We are currently in the gap period between the start and the effect. Large office blocks in Manhattan selling at 90% discount SF/LA hotels selling at 70% discounts and Florida residential down 40% of course its always different in NZ until it isn't and that time is fast approaching. If Orr does not see the gap and raises OCR and ignores global trends he will descend from the worst RBNZ Goveror in decades to the worst ever. If he raises OCR Govt should express no confidence and join a majority of electors who see the real world without rose coloured specs.
Taking the Proverbial - your comments are just "Blind" optimism - to suit your "vested" interests, hoping someone will fall for them, while there are NEVER any actual figures stated.
It's just rhetorical cr*p ....with no backbone.
To everyone ......CAVEAT EMPTOR !
KYC NFA DYOR
I got mine for 2007 RWC and just considering replacement. The point is absolutely right - we consume far too much unnecessarily, the environmental consequences of which are starting to become apparent (to some). The economic consequence - debt - will also be felt by many for a long time.
No perceived incentive to pay it off while interest rates were historically low.
But eventually they normalise, interest payments become much larger and there is suddenly more incentive to pay off regardless of how fast house prices are rising (if they were to continue rising at all..)
well people on here will probably not remember but I was saying smash the mortgage while rates were low, you could have maximised paying off the principal but most people probably did the opposite and took the opportunity to take on more debt instead and buy that new car etc.
I'm not surprised at all having made low unemployment my 2023 prediction.
Tighter labour markets will be a permanent feature of our economy, just due to demography we have fewer workers per consumer each year:
https://data.worldbank.org/share/widget?indicators=SP.POP.1564.TO.ZS&lo…
but its 'crap' vs what we spent on retail during the boom -> we had every increasing home equity, cheap credit, high employment and high wages.
We cant restart that period.. so the new spend level 'is' the norm.
one gets the feeling everyone is still expecting to wake up in a few months and everything will go back to the days of 2% rates.... lol.
The RBNZ has many other levers it could use if it really wanted to reduce the debt pool.
Problem is tho ... The banks would start squealing blue murder and threaten to increase borrowing costs should the RBNZ use them. .... Read that again - they'd threaten to increase borrowing costs. Hang on a moment ... Isn't that what the RBNZ is doing by increasing the OCR?
The usual suspects touting the HFL rhetoric. What a surprise! (Of course working for banks they're hardly impartial observers!)
And nice to see a more balanced comment from Infometrics.
Making lots of people unemployed is not required to bring inflation down. Only having the employment market back in balance. Once that's done, as it appears to be, the focus can shift to where inflation really comes from ... Price rises and what is driving them.
Nor is making businesses fail. This removes competition from the market and allows the remaining suppliers to increase their prices.
Its not about raising unemployment, the low unemployment in NZ is supporting wage increases. With average wages increases in 2023 @ 6.9%, I'd say that the headline inflation is understating the heat in the economy, and the neutral OCR is at least 5%.. We could have 4% inflation for a few years.. everyone buying investment properties at the moment at a gross yield under 5% is betting on it.. rents are cranking up..
why?
because if you only have $70-150k then its a ticket in the lottery and word on the street is every ticket is a winner
new zealanders no longer have any real means of working and saving for retirement
so we have taken up betting in a big way
that's why
(and the bookies love it)
Haha bank economists speculating... Everyone speculating... The information age or is it the opinion age... Data is proof subject to speculation and bias perspective... The theory is baked in but is it true... Disharmony abounds...
The RBNZ wants higher unemployment...
The Government wants full employment...
The Market wants more profit no matter the cost...
The Owners want higher prices... The Buyers want lower prices...
The Lenders want to lend more... The Borrowers want to borrow less...
The people want what?
Demand, demand, demand...
The OCR, inflation, cost of debt, price of money will bring price stability, financial stability, create balance and harmony...
Houston, we have a problem.
FUBAR... Mwaahhh
I am not sure this government is that bothered about full employment. Their 'base' arent the ones likely to lose their jobs if the economy continues to falter, and they are the ones who are willing to take a short term small pain pill to sort the country out, rather than a bigger one later.
I guess from this point on, the new government will politically wear any impact if the unemployment rate rises from here. From the next update on the rate will be reflective of the new government's policies starting to take effect. It'll be interesting to see what happens.
Orr looks like a man who has been told what to do by the powers that runs the system higher rates will be here for quite some time as people are loaded with debt after 13 years of cheap money now rates are back to a normal level anyone who has over borrowed will be struggling just to keep up with interest payments especially those with credit card debt some of which is in the 29% range. Many people have a mortgage over 5 x income and have paid way over value for property some which have lost 20% of value from highs,and now looks likely to start its next tumble.
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