At 4.5%, New Zealand’s unemployment rate is at its lowest since December 2008 and there are some promising signs wage inflation is beginning to pick up some steam

New Zealand’s unemployment rate has fallen to an almost decade low of 4.5% while annual wage inflation has jumped by almost 2%.

But the level of underemployment across the country has risen to the highest level of all-time.  

Figures released by Statistics New Zealand Wednesday morning show unemployment in the December quarter of last year decreased by 0.1% on the quarter before and was down 0.8% year-on-year.

The fall was in line with Westpac’s forecasts but came in lower than market expectations of a rise to 4.7%.  

Statistics New Zealand labour market statistics senior manager Jason Attewell says the unemployment rate is at the lowest level since December 2008’s 4.4% level.

But the unemployment rate is still almost 1% above New Zealand’s all-time low of 3.3%, recorded in December 2007.

Meanwhile, annual wage inflation was up 1.8% in the year to December and was up 0.4% on the quarter before.

Attewell says the underutilisation rate – the measure of the potential labour supply and unmet need for work – was at just over 12%, reflecting roughly 324,000 New Zealanders with potential to work more.

It rose by 0.1% from the September quarter and was down 0.3% on the December 2017 quarter.

University students looking for a job in anticipation of graduation, or a parent who has recently returned to the workforce looking to work more days, are examples of people in this category.

“This measure is just as important as the unemployment rate,” Attewell says.

A major factor behind the quarterly rise in the underutilisation statistic was the number of people who are underemployed – people in part-time employment who would like to work more and are available to do so – which was up 7,000 to 122,000 – a jump of 6.3%.

This is the highest level of underemployment on record.

A tightening of the Labour market was expected by economists.

Westpac senior economists Michael Gordon was expecting the unemployment rate to drop to 4.5%, over the quarter as, he says, benefit numbers and business opinion surveys all pointed to steady rather than rapid improvement in the jobs market over the quarter.

Gordon says the labour market will feature prominently in discussions about the economy over the course of this year.

“An unemployment rate of 4.5% is within the range of what we would consider neutral for inflation – that is, we have yet to enter ‘tight’ territory in this cycle,” he says.

He adds that the wage inflation increase is on the low side of what would have been expected, given the improvement in the unemployment rate and what businesses are saying about the difficulty of finding workers.

Capital Economics chief New Zealand economist Paul Dales says the rise in the underutilisation rate suggests the labour market isn’t quite as tight as the unemployment rate suggests.

“This partly explains why wage growth remained muted. The 0.4% q/q rise in the labour cost index left the annual growth rate at 1.9%. That’s up from 1.6% in Q2, but remember that’s due to the health care workers pay settlement that began on 1st July. As such, there is still no sign of a cyclical rise in wage growth.”

At a glance:

Unemployment rate – 4.5% (-0.1% for the quarter, -0.8% for the year)

Underutilisation rate – 12.1% (+0.1% for the quarter, -0.3% for the year)

Employment rate – 67.8% (no change for the quarter, +0.9% for the year)

Labour force participation – 71% (-0.1% for the quarter, +0.4% for the year)

Unemployed – 122,000 people (-2.8% for the quarter, --12.2% for the year)

Employed – 2,605,000 people (+0.5% for the quarter, +3.7% for the year)

Wage inflation – 1158 on the index (+0.4% for the quarter, +1.8% for the year)

Average weekly paid hours – 38.74 hours (+0.1% for the quarter, +0.2% for the year)