Unemployment in NZ expected to fall to 'record' low

Friday, 29 April 2022

The official unemployment rate is based on a survey by Stats NZ. To count, people must have actively looked for work in the previous four weeks.

Economists are tipping Stats NZ will report that unemployment has fallen to a new record low when it releases jobs numbers for the first three months of this year on Wednesday.

Official unemployment fell to 3.2% in the December quarter while the ‘underutilisation rate’, which is a broader measure of unemployment and underemployment, remained unchanged at 9.2%.

The Reserve Bank forecast in February that unemployment in the March quarter would flat line at 3.2%.

But ASB forecast on Friday that Stats NZ would report official unemployment had dropped to 3%, which would set a record low since comparable records began in 1986.

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Infometrics is forecasting unemployment will have edged down to 3.1%.

The projections for the unemployment rate that the Reserve Bank made in February.

The Omicron outbreak could impact the labour market figures in a number of ways.

The official unemployment rate is derived from a survey, rather than beneficiary numbers, and to count as unemployed people must report they would be available for work in the week they are surveyed.

But some people wanting work might not have been available to start work that soon if they were sick or self-isolating, which could suppress the official unemployment rate.

Infometrics principal economist Brad Olsen said that could absolutely have an impact on the numbers.

Both Infometrics and ASB believe Stats NZ will report that the number of hours people worked fell during the quarter, even while unemployment also dropped, with ASB also predicting a small drop in the workforce participation rate, which is the proportion of people working or actively looking for work.

The rising cost of living appears to have overtaken unemployment as the key economic concern for most Kiwis.

ANZ reported on Friday that, unusually, consumer confidence was extremely low despite low unemployment.

It attributed that in part to the fact that the vast majority of people were seeing their disposable incomes slide backwards because of higher inflation and rising mortgage rates.

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Economists are likely to be watching for evidence from Stats NZ on Wednesday that low unemployment is feeding through more strongly into higher wages.

If a strong trend in that direction is evident, that could be expected to increase the chances of the Reserve Bank ordering another ‘double hike’ in the official cash rate to 2% when it releases its next monetary policy statement on May 25.

ASB expected annual wage growth would hit its highest rate since 2008, while still lagging far behind the 6.9% inflation rate.

Senior economist Mark Smith said both the average size and the breadth of wage rises would be important.

ASB is forecasting higher wage rises will become more broad-based this year.

“The phased relaxation of border restrictions could tighten the labour market further as Kiwis head overseas on a belated ‘OE’ and to take advantage of the higher wages on offer,” the bank said in a research note.

But the opening of the New Zealand labour market to non-visa waiver countries by the end of the year should subsequently alleviate labour shortages, it also said.

Olsen hoped and expected the data would show an increase in the pace of wage rises “because otherwise New Zealand households will be going backwards in a bad way”.

Some economists were being naive in underestimating businesses’ ability to absorb higher wages and pass on costs, he said.

Unexpected scenarios that might shift the Reserve Bank’s view of where monetary policy needed to head would include a combination of stronger employment growth, much stronger wage growth and lower unemployment, which could lead to further upward pressure on interest rates, he said.

On the flip side, if the data showed an increase in the unemployment rate then the central bank would want to look hard at the data to see if that was due to short-term volatility or the start of a longer-term shift, he said.