UPDATE: Weaker employment adds to rate-cut case   4 Nov 2015

Johnathan Underhill

Article - BusinessDesk

UPDATE: NZ employment falls in third quarter, adding to case for further RBNZ rate cut

(Recasts to focus on monetary policy implications, adds economist comments)

By Sophie Boot and Jonathan Underhill

Nov. 4 (BusinessDesk) - New Zealand employment unexpectedly fell for the first time in three years in the third quarter, stoking speculation among economists that a weak labour market gives the Reserve Bank another reason to cut interest rates as soon as next month.

Employment slipped 0.4 percent in the three months ended Sept. 30, for an annual gain of 1.5 percent, Statistics New Zealand said. The participation rate dropped to 68.6 percent from 69.3 percent. The kiwi dollar fell as low as 66.50 US cents from 67.05 cents immediately before the release and was recently at 66.55 cents. The trade-weighted index dipped to 71.75 from 72.32.

Employment had been expected to grow 0.4 percent in the latest quarter, according to a Reuters survey, while the participation rate was expected to hold at 69.3 percent. The government data did confirm expectations for an increase in the unemployment rate to 6 percent from 5.9 percent, which both the central bank and the market had expected.

The labour market data adds to the complex mix of factors Reserve Bank Governor Graeme Wheeler must weigh up when deciding whether to cut the official cash rate again, including the slump in the price of dairy products this year, Auckland's overheated housing market and a kiwi dollar which has unexpectedly gained, reducing the amount of imported inflation. Most economists still expect a further rate cut by the Reserve Bank following today's announcement, though they are divided on the timing.

"While some of the surprise could be attributed to the notorious volatility of NZ labour data, we must also take on board the labour market is softer than we were thinking," said ASB's chief economist Nick Tuffley. "The data reinforce our view that the RBNZ should cut the OCR again in December. And the risk is the OCR gets cut even lower over 2016."

By contrast, ANZ Bank New Zealand's chief economist Cameron Bagrie told BusinessDesk the headline rise in unemployment, while negative, is not the only important figure.

"The whole household labour force survey has been incredibly volatile in the past few years," Bagrie said. "Unemployment is a lagging indicator, and other indicators in the report were positive - hours worked, and filled jobs in the quarterly employment survey. I place more value on leading indicators than on lagging ones."

Bagrie expects a further cut to the official cash rate by the Reserve Bank "but I'm agnostic about whether that will be in December or later."

Filled jobs, which includes full-time, part-time and working proprietors, rose 0.7 percent, seasonally adjusted, in the third quarter, having dropped 0.9 percent three months earlier. Hours worked increased 0.4 percent, on the same basis, after falling 0.3 percent in the second quarter.

The government statistician didn’t have a breakdown by industry of the drop in employment in the quarter. The figures showed part-time jobs fell 4.1 percent in the quarter, amounting to about 28,700 positions. Part-time positions tend to be seasonal and volatile. Total employment fell to 2.33 million from 2.35 million.

Employment rose by about 34,000 people in the year, which was attributed to demand in the construction industry, which added 20,500 jobs. Auckland contributed the biggest share of that, adding 14,700 jobs, while in Canterbury, there were 5,000 more jobs. Yet in both regions, employment growth is slowing. Auckland’s growth rate was 1.5 percent, down from 3.9 percent in the June year, while Canterbury’s growth of 1.3 percent, while up from 1 percent in the year to June 2015 is down from a peak of 7.6 percent in the September 2014 year.

The employment figures come after a survey showed businesses turned positive on the economic outlook and are more willing to hire workers, following a sharp deterioration of sentiment mid-year, when dairy prices plunged and before the recent partial global price recovery. The ANZ Business Outlook showed those firms planning to hire staff rose to a net 12 percent in October from 3 percent a month earlier.

Yet there are job losses as well, in sectors facing tougher conditions, such as the dairy sector. In September, Fonterra Cooperative Group announced 227 job losses, adding to 523 laid off in July. And Westland Milk also flagged potential layoffs that month to cut costs in the face of the global slump in dairy prices.

Wage inflation was 0.4 percent in the quarter for an unchanged annual rate of 1.6 percent, based on the labour cost index. Private sector wages rose 0.4 percent in the quarter and 1.7 percent in the year, outpacing a 0.3 percent quarterly increase for the public sector for an annual 1.2 percent.

(BusinessDesk)

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