NZ unemployment expected to remain near record low despite chill wind

Friday, 27 January 2023

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.

Some economists expect Stats NZ will report that official unemployment has dropped back to a recent record low when it releases its latest labour market figures on Wednesday.

But any celebrations are likely to be dampened by the sense that a cold front may already have passed over the economy, which could already be in recession.

The Reserve Bank is expected to be watching more closely for evidence of high pay rises that could compromise its current fight against inflation.

ANZ and ASB are forecasting official unemployment will decline to 3.2%, which would be down from 3.3% in the September quarter.

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* Unemployment in NZ expected to fall to 'record' low

The current golden era of low unemployment may be drawing to end.

Official unemployment was also measured at 3.2% in the March quarter and in the December quarter of 2021, but hasn’t fallen below that since Stats NZ began measuring unemployment using its current methodology in 1986, meaning it would probably be the lowest rate since at least the 1970s.

ANZ is forecasting average hourly earnings in the private sector, which is one key measure of wage rates, will have shot up 9.1% over the year.

But it said that while the figures should confirm that the labour market ended last year on a high note, that wouldn’t tell anyone much about the outlook for this year.

“Forward indicators of labour demand have softened significantly in recent months … as signs of deteriorating domestic demand become increasingly established.”

There is evidence that the bow wave of higher unemployment globally is being felt first by white-collar workers, with vacancies in New Zealand still running high in the hospitality industry and other lower-paid sectors of the economy that have been buoyed by the return of international tourism.

Westpac acting chief economist Michael Gordon tipped that unemployment would remain unchanged at 3.3% and the bank has now joined ANZ and Kiwibank in forecasting that the Reserve Bank will limit its next interest rate rise next month to a 50 basis point hike that would take the OCR to 4.75%.

But New Zealand workers had been more successful than their counterparts in Australia and the United States in negotiating higher pay, and the risk of a wage-price spiral developing here was high enough to keep the Reserve Bank on red alert, Gordon said.

ASB is sticking to its previous forecast of a 75bp rise in the OCR next month, but agreed the chances were tilting towards the central bank needing to do less.

Kiwibank also expected unemployment to remain “at or near 3.3%”, but noted job ads fell late last year and was forecasting the unemployment rate would begin lifting from around the middle of this year before reaching 5% to 5.5% next year.

The Reserve Bank forecast in November that Stats NZ would measure unemployment at 3.2% but that it would climb steadily to 5% by March next year and to 5.7% the following year.