Westpac and ANZ economists are expecting the unemployment rate to climb from 4% to 4.2%, while ASB and BNZ think it’ll climb a smidge higher to 4.3%.
The latest labour market data, for the March quarter, will be released by Statistic New Zealand on Wednesday, May 1.
The Reserve Bank (RBNZ), still battling inflation above its 1% to 3% target, is expecting an unemployment rate of 4.2%.
In the December 2023 quarter, the country’s unemployment rate increased from 3.9% to 4%, lower than economists’ expectations given several had anticipated a rate around 4.3%.
Back in December 2021, unemployment fell to 3.2% and increased by only 0.2% over the subsequent year. However, upward pressure started in early 2023 due to significant net migration and rising interest rates.
The underutilisation rate, which provides a broader perspective on available labour capacity, increased from 10.4% to 10.7% in the December 2023 quarter. The underutilisation rate stood at 9.3% during the same quarter in 2022.
Westpac senior economist Michael Gordon said Westpac’s unemployment forecast of 4.2% for the March quarter was “still a low level compared to history but it’s a substantial lift from the record low of 3.2% that was set two years ago”.
“The upshot is that we’re not expecting next week’s report to offer much to shift the RBNZ’s thinking. While supporting employment is no longer directly part of the RBNZ’s mandate, the labour market remains a valuable gauge of the strength of the New Zealand economy, and the extent of home-grown inflation pressures,” Gordon said.
ASB senior economist Mark Smith said Wednesday’s data figures had the potential to be “noisy and prone to historical revision” but the bank was expecting the numbers to show an easing in labour conditions.
“In spite of the sharp drop off in job advertising and gloomy headlines, we expect overall employment to increase over the first quarter, but this is more reflective of the lags in the system than a resurgence in labour demand,” he wrote.
ASB expects labour demand to stay low in 2024, with the unemployment rate likely to exceed 5% by year-end.
Smith said annual labour cost growth should cool over the rest of the year due to heightened job competition, modest increases in the minimum wage, and reduced compensation for easing inflation.
“However, services and core CPI [consumers price index] inflation remains too high for the RBNZ’s comfort, with concern over persistently-high wage inflation rates that are not productivity driven. Further cooling in labour cost growth is the pre-requisite to annual core inflation moving below 3% on a sustained basis,” he said.
ANZ economists Miles Workman and Henry Russell are expecting the labour market data to shift “further into disinflationary territory” but they noted that despite the economic weakness in the past year, employment growth has outlasted expectations.
“While that reflects the continuation of the catch-up in employment levels following the period of intense labour shortages, forward-looking indicators of labour demand suggest the expansion in employment is near its end,” they said.
BNZ senior economist Doug Steel said that the retail bank was anticipating the data would confirm a “softening” in the labour market – though not significantly different from the RBNZ’s expectations.
“There will be interest to see what influence the government’s public sector staff reduction programme has had on first quarter employment figures, though it may be a little early for it to show up,” he said.
In the December 2023 quarter, the overall employment rate stood at 69%.
It experienced a yearly increase of 2.4% and a quarterly rise of 0.4%, but it still lagged behind its peak of 69.8% recorded in June 2023.
Westpac has forecast a 0.4% uptick in the March 2024 employment rate while Both BNZ and ANZ think the employment rate will grow 0.3%. ASB expects just a 0.1% increase.
Wage growth?
Stats NZ reported in February, when the December quarter labour market data was published, that the labour cost index – which measures the cost of the same standard job to employers – increased 4.3% during 2023.
Westpac expects the pace of wage growth to ease, even more so compared to the December quarter which had been boosted by a public sector pay agreement.
Gordon said the new Government’s announcement of a 2% minimum wage hike would ease wage pressure in migrant-heavy sectors.
“The current cost-cutting in the public sector suggests that they won’t be bidding up to attract or retain workers,” he said but pointed to teachers’ and nurses’ wage agreements being multi-year meaning further increases would be seen over the June and December quarters.
The tourism sector's rehiring phase was also complete, with visitor numbers around 80% of pre-Covid levels, meaning limited growth prospects.
“Together, this suggests that we should see a more meaningful moderation in wage growth over the year ahead,” he said.
ANZ’s Russell and Workman also expect wage growth to have continued to ease – albeit gradually – in the March quarter.
They said private sector labour costs, including overtime, are expected to rise by 3.8% compared to 3.9% in the December quarter while average hourly earnings in the private sector are predicted to decrease by 0.7% to 5.9% year-on-year.
“The RBNZ will certainly be looking for a moderation in wage growth, though the lagged response of wages means the first quarter data will tell them where the labour market has been, rather than where it’s heading,” Workman and Russell said.
49 Comments
Over 30 years ago I was calculating and paying redundancies for hundreds of workers laid off as a result of Rogernomics. The payments were tax free then, and many long serving staff could literally buy a freehold house with the amount received. Probably several houses in the small towns that suddenly lost their main employer.
I imagine these days the standard private sector employment contract redundancy clause is "there is no redundancy pay". Does anyone know the situation for all those thousands of government workers hired in the last few years?
Not quite correct.
While formal notice is usually four weeks (after a required process of consultation) severance or redundancy pay is not necessarily four weeks.
Government and related organisations (e.g. Health) collective agreements vary and are usually by formula - in which length of service is one of the multipliers.
The MBIE / PSA Collective Agreement is: Redundancy compensation will be paid at the rate of eight weeks’ salary for the first year of service and two weeks’ salary for each year thereafter to a maximum entitlement of 30 weeks’ salary.
Individual agreements obviously vary, but are usually not less than that of the collective agreements and for those especially in senior roles are far more advantageous.
Redundancy payments are taxed at the marginal rate, i.e., will be treated as a top-up to your annual income for the rest of the FY.
The government will be clipping the tickets to the tune of 30 to 33% of those redundancy payments.
https://www.ird.govt.nz/situations/i-am-being-made-redundant/redundancy…
That sounds about right to me.
Also, depending on the circumstances they are often flexible too. They will try hard to redeploy you to another role in the organisation first. Also it can take quite a few months before the final date, during which time they might offer some training or outplacement type service. Depending on the driver, it can be easier to ask for voluntary redundancies for those who want to leave.
I worked at one of the big 4 banks for a couple of years (left in 2011). There were many redundancies at that time coming out of the GFC but it was hugely generous. There were people who had been with the bank for their whole careers 20-30 years getting 2 years salary or more tax free. People were queueing up for voluntary redundancy/early retirement. I am sure it is not so generous these days.
Today's issue is retention. So much job movement with all the wage hikes since 2020 it is hard in larger organisations to retain your staff and the knowledge and capability that they have amassed. Currently nobody, least of all government would want to get rid of older workers with better redundancy packages in their contracts. My pick is they;'ll get rid of more recently created positions and those on contracts with less to pay out. Watch this space
Unemployment is calculated by measuring the number of people looking for work. If unemployed are not looking for work, then they don't appear in the statistics. The world has changed so much in the past 30 years in that people are happy to not look for work for a while (eg they have a big redundancy payout, they are having a break before moving to Australia, they make money on the internet). I don't see the official stats of unemployed rising to 5%. In any case, it shouldn't affect the ocr, as that mandate to control Unemployment is no longer in place.
"The world has changed so much in the past 30 years "
Bingo!
And yet how just about everyone is thinking about unemployment remains locked into thinking it's the same as it was 30 years ago.
So yes, I agree that things will be much, much worse with a 5% unemployment rate now than they were 30 years ago with the same 5% unemployment rate. Or put another way - 5% now would be more like 10% way back then. The nature of 'work' has changed a massive amount. (Case in point? Work from Home.)
The 'underutilization rate' may be a better measure? Not sure. But I lean that way.
"Anything under 4.2% will cause HFL. It will probably take something quite high to cause a rate cut, at least 4.5%. Even 4.5% is very low. "
Even 4.5% is very low? Based on what? Studies about the 'non-accelerating inflation rate of unemployment' that were performed 30+ years ago and have been taken as gospel ever since? See my comment here why this unemployment rate needs a total re-think.
"The RBNZ will certainly be looking for a moderation in wage growth, though the lagged response of wages means the first quarter data will tell them where the labour market has been, rather than where it’s heading,” Workman and Russell said.
It's where it's heading that's the scary part. Significant wage increases are coming to an end, businesses are shedding staff, record numbers of job applicants, and immigration still at high levels.
What could possibly go wrong?
Thousands of low-skilled migrant workers have secured 5-yr work visas over the last 18 months in exchange for tens of thousands of dollars to unscrupulous businesses.
Expect more headache coming for Immigration NZ as many will come up with "creative" means to stick around - applying residency on humanitarian grounds, entering into fake marriages with Kiwis looking for a quick payday - to name a few.
Governments need to stop spinning the BS that these students are coming here for our "world-leading" tertiary education. In reality, more than half of Indian students (our largest export education market) are only here to work and therefore opt to study at cheaper polytechs.
Unless those geniuses are confusing the tech institute in Manukau with the one in Massachussets.
Heard from someone in the industry that the student market is largely driven by the opportunity for employment and the opportunity for a visa.
It's just immigration with the migrants paying the Universities/polytechs rather than mailbox "employers" and they all know it.
The NaCT donors are already out there in full force whining and moaning: we are entitled to cheap overseas labour!
https://www.rnz.co.nz/news/national/515405/immigration-changes-necessar…
https://www.rnz.co.nz/news/business/513794/concern-for-economy-as-truck…
Chief executive Alan Pollard said the changes to the Green List jobs were putting big infrastructure projects at risk.
"We need to be able to move very quickly when the projects that are promised by the government are actually properly funded and committed," he said.
"Without access to a smooth running immigration pathway, we're going to struggle to resource it."
Projects like new Roads of National Significance, water network upgrades and cyclone recovery work would all suffer under the changes, Pollard said.
These projects are not going to happen, there is no money for them, we can barely cover maintenance costs of existing roads which is why Simeon Brown is declining to comment.
"Further cooling in labour cost growth is the pre-requisite to annual core inflation moving below 3% on a sustained basis,” he [ASB senior economist Mark Smith] said.
Man alive am I sick of this b.s. There are numerous scenarios where labour cost growth has risen but inflation hasn't! (e.g. rises in labour productivity due to capital investments in plant & machinery. How about the banks lend less on houses and more on NZ Inc?) These charlatans make it look like Orwell's 1984 is well and truly upon us.
edited:
Smith goes on, "However, services and core CPI [consumers price index] inflation remains too high for the RBNZ’s comfort, with concern over persistently-high wage inflation rates that are not productivity driven. " In essence, he corrects the statement above. So Banks - How about making our existing labour pool more productive with more lending for more plant & machinery, more building, rather than for existing houses?
That's not very fair Chris..
Firstly I know Mark and he is a one of the good ones..... and he understands how those laid off will be feeling right now.
Secondly banks are prepared to lend BUT they need people prepared to borrow. Plant and Machinery has a higher reserve bank risk weighting then houses, so the lending will be more expensive. That's not the banks fault, look at RBNZ....
And borrowers need to feel that they can recoup plant costs, vs a plant in China running 24/7 ?
Much of our NZ plant and machinery is tied to residential construction and fit-out, hardly a great time to borrow here....
I also know people in manufacturing and believe it or not its really hard to find staff to turn up to shifts in the day, who do not call in sick on Mondays and Fridays and can pass a drug test.... Most jobs on a production line do not pay that high in NZ for an 8am-5pm, let alone a night shift. How do we compete with Indonesia, China India etc, sure we can niche make for NZ, but that's normally only an 8-5 shift with perhaps a bit of overtime, and now that economy is shrinking, maybe not even a 40 hr week.
It really annoys me that banks have lent so much into resi mortgages BUT it does not mean they would OR COULD have lent anywhere near that much into manufacturing in NZ, not even into food secondary production like ice cream, cheese etc in NZ (Still very small beer, and lets not get started on the tax that small brewers have to deal with). NZ is a primary producer with a land ponzi on the side.
When I was referring to plant & machinery, why did you jump to the conclusion I meant only manufacturing?
edited: And next time you talk to Mark, perhaps ask him if the big banks in NZ have built up the the skills and competency to assess the risk of anything much except houses ... and the occasional diary farm. And perhaps, after their bankers have signed a loan, whether they take any further interest in the business's success. ;-)
the outlook for engineering specialists looks bleak for the next 12-18 months
The tendency to take a “wait and see” approach – waiting for certainty on the Government’s direction – is creating a very challenging environment Link
All hell will break lose if the private sector is forced to layoff higher skilled workers en masse. Rising mortgage stress and big slashes in discretionary spending at the flashy end of town could be the straw that...
The Kiwi workers that these corporates throw out in favour of offshoring can always find work in tourism. There is always the option to serve takeaways and lattes to IT engineers from Bengaluru who work remotely for Westpac and are visiting NZ for their honeymoon.
Offshoring is a global phenomenon but NZ didn't have many high-paying jobs to begin with. In other words, we have a great headstart in this global race to the bottom.
Disagree there. It has opened up a different model of how we work and what our lifestyle can be. It has opened up opportunity for those in smaller towns to earn more with remote jobs, it has opened up employment opportunities for stay-at-home parents who have greater options for work now that cater to school hours in a more broad range of areas than was previously offered, and it has allowed those in larger cities who were forced to commute 5 days per week previously to consider residing elsewhere based on the ability to WFH, this getting greater value for money in a more affordable part of the country while retaining their city salaries.
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