Stats NZ says unemployment rate rises to 6.4% in June qtr from 6.2% in March qtr; Jobs grew 0.4% in quarter; around expectations

By Bernard Hickey

New Zealand's unemployment rate rose to 6.4% in the June quarter from 6.2% in the March quarter as a slight rise in the participation rate more than offset a 0.4% rise in employment in the quarter.

The result was broadly in line with market expectations and consistent with signs of an economic rebound driven by construction and real estate as Auckland's housing market booms and Christchurch's rebuild grinds into action. However, wage inflation remained subdued, keeping the pressure off the Reserve Bank to hike the Official Cash Rate any time this year, economists said.

Westpac Chief Economist Dominick Stephens said there was nothing in the Statistics NZ figures for wages and employment to suggest wage inflation was picking up.

"At the margin the data were slightly weaker than we or the Reserve Bank expected, but the surprise was not significant enough to cause a market reaction or to change our monetary policy expectations," Stephens said.

JP Morgan Economist Ben Jarman said the labour market took a breather in the June quarter. 

"The fact that the jobless rate has paused above 6%, along with the absence of wage and price pressures, tells the RBNZ they have a little time on their hands," Jarman said.

The consensus economic forecast was for a rise in the jobless rate to 6.3% and 0.3% employment growth.  The labour force participation rate rose 0.1% to 68.0%. The NZ$ was broadly unchanged after the figures were released. 

Statistics NZ also released the Quarterly Employment Survey showing a deceleration in annualised wage inflation to 1.7% in the June quarter from 2.1% in the September quarter a year ago. 

"Wage growth remains very subdued, and is unlikely to concern the RBNZ for some time," said ASB economist Daniel Smith.  

"We do expect a gradual pickup in labour costs over the coming year as the labour market tightens but with plenty of slack seemingly remaining, any pressures will only be modest," he said, adding ASB continued to expect the Reserve Bank to wait until March next year before lifting the OCR.

In the quarter the seasonally adjusted number of people employed increased by 8,000 or 0.4% to 2.242 million, which followed a 1.7 percent rise in the March 2013 quarter.

Statistics NZ said the rise in employment came entirely from a 10,000 rise male employmen, while the number of women employed fell 0.2%.

It said the 2.2% annual growth in actual hours worked was larger than employment growth, which reflected a 1.5% rise in average weekly hours worked to 33.6 hours.

Weak wage inflation

Statistics NZ also reported private sector labour cost index inflation of 0.4% for the quarter and just 1.7% from the same quarter a year ago, which was down from 1.8% in the March quarter. This is expected to keep the pressure off wider inflation.

ASB economist Daniel Smith said construction wage cost inflation in Canterbury was 0.6% for the quarter, about double the level for the rest of New Zealand, but had slowed somewhat.  

"The annual rate of growth has slowed to 3.6% from 4.3%, while annual construction cost growth for the rest of the country remains fairly steady at 2.1%. This suggests limited spill over to the rest of the country from the increased cost in Canterbury generated by rebuild demand.  This will be a key area the RBNZ will be monitoring over the coming year," Smith said.

Some economists said the slow growth in employment and weak wages growth despite apparently strong economic growth was due to a lag.

"While the strength in the timely domestic activity indicators is yet to fully translate into significant labour market improvement, we expect this to come through over the second half of the year," said HSBC Chief Economist Paul Bloxham.

"We still expect the RBNZ’s next move is up and that this could occur around year end, though the risks are tilted to a slightly later move," he said.

Political reaction

Employment Minister Steven Joyce said the figures showed a continuation of a trend of growing employment as the economy recovers, pointing to Statistics NZ's Quarterly Employment Survey showing an extra 65,400 jobs added over the last two years.

“Through our Business Growth Agenda, the National-led Government is encouraging more investment in New Zealand as we know that nothing creates jobs and boosts incomes for Kiwi families better than business growth and investment,” Joyce said.

Labour Spokesman Grant Robertson said the 5,000 increase in unemployment showed the National Government had no plan to create jobs.

“After nearly five years in office, National’s legacy is growing unemployment with more than 150,000 New Zealanders still desperately looking for work,” he said. “It’s time for National to get past the excuses of the Global Financial Crisis and the earthquakes.”

(Updated with more details and charts, reaction)