The unemployment rate rose to 5.6% in the June quarter, higher than expected. Surveyed employment growth was outweighed by a rise in participation.
- Unemployment rate: 5.6% (prev: 5.4%, Westpac: 5.4%, RBNZ: 5.4%, mkt: 5.4%)
- Employment change: 0.5% (prev: +0.1%, Westpac: +0.1%, RBNZ: +0.1%, mkt: +0.1%)
- Participation rate: 70.7% (prev: 70.4%, Westpac: 70.3%, RBNZ: 70.3%, mkt: 70.4%)
- Labour costs (private sector): +0.7% (prev: +0.5%, Westpac: +0.6%, RBNZ: +0.6%, mkt: +0.6%)
The June quarter surveys pointed to soft labour market conditions overall, but with some surprises in the details. The unemployment rate rose to 5.6%, above market and RBNZ expectations and the highest reading since September 2015. Wage growth was a little stronger than expected, but is not obviously accelerating in the face of mounting cost-of-living pressures.
The Household Labour Force Survey (HLFS) showed a surprisingly large 0.5% lift in employment in the June quarter. However, this was accompanied by an even larger rise in the labour force participation rate from 70.4% to 70.7%. Large co-movements in these measures are typically an indicator of sampling error in the survey, and indeed there is other evidence that labour demand was not as strong as these figures suggest. The Monthly Employment Indicator (MEI) suggests a rise of around 0.1% in filled jobs over the quarter, while the employer-focused Quarterly Employment Survey (QES) showed a 0.4% fall in filled jobs and a 0.3% fall in hours paid.
In these circumstances we generally recommend focusing on the unemployment rate, which is less vulnerable to sampling error (but not immune). The rise in unemployment to 5.6% was larger than we and the market were expecting, and follows an upward revision in the March quarter to 5.4% (previously reported as a fall to 5.3%). A move of this size is in line with the long-run history of this series – the last five years or so have been relatively unusual in terms of how smoothly the unemployment rate has evolved. And our Westpac McDermott-Miller Employment Confidence Survey had suggested a reasonable lift in labour market slack in the quarter.
The Labour Cost Index (LCI) showed a 0.7% rise in private sector wages and salaries for the quarter, leaving annual growth unchanged at 2.0%. Public sector wages were more subdued at 0.5% for the quarter and 1.7% for the year. The results were a little stronger than we assumed, but they point to a stabilisation rather than an accelerating in wage pressures. The distribution of pay increases was unchanged from last quarter, with increases converging on the 2-3% range. While more employers are citing the cost of living as a reason for increasing pay rates, fewer are citing the need to attract or retain workers – that is, it suggests a shift in the justification rather than a groundswell for larger pay rises.
Overall, we think the details are mixed from the RBNZ’s perspective. The unemployment rate rose by more than expected, and although the employment measures were mixed, on average they support our expectation of soft growth in activity over the quarter. (This will be compounded by the seasonal distortion in the GDP figures, which mean that the June quarter result will likely print negative). Wage growth showed some signs of passthrough from higher inflation, but otherwise the demand for labour appears soft.
