NZ employment unexpectedly falls in Q2, reinforces central bank’s neutral stance

By Charlotte Greenfield WELLINGTON, Aug 2 : New Zealand’s employment unexpectedly contracted in the second quarter for the first time in 1-1/2 years and wage growth slackened, reinforcing the central bank’s recent signal it could keep its policy rate at record lows at least until 2020.

The surprise contraction in jobs and listless wage inflation spooked investors, sending the New Zealand dollar to a one-week low of $0.7426 from around $0.7466 just before Statistics NZ released the data earlier on Wednesday.

Employment rolls shrank 0.2 percent in the second quarter, with 4,000 fewer people employed, after six consecutive quarters of gains.

That translated into a 0.4 percentage point quarter-on-quarter drop in the employment rate.

Market expectations were centred on employment rising 0.7 percent in the June quarter.

Most economists, however, weren’t overly concerned about the weak employment numbers given the volatility in the quarterly data.

“The fact that it fell I think is more statistical noise than a clear signal. Labour market data is volatile,” said Philip Borkin, senior economist at ANZ.

What was more worrying for policymakers is the sluggish pace of wages growth, with quarterly wage inflation at 0.4 percent unchanged from the first quarter.

At 1.6 percent, annual wage inflation was also lower than consumer price inflation of 1.7 percent in the second quarter.

The Reserve Bank of New Zealand (RBNZ) has expressed concern that robust economic growth and industry complaints of labour shortages in high-skilled sectors such as technology and construction, have not led to broad-based growth in wages.

“This release reinforces the idea that the RBNZ will be in no rush to raise interest rates any time soon,” said Nick Tuffley, chief economist at ASB Bank.

“There is just not a lot of sign of wage inflation coming through and you have also got that question mark being raised over the weak employment growth after two quarters of moderate GDP growth,” he added.

The RBNZ, which is due to meet on Aug. 10 for a monetary policy decision, slashed rates throughout 2016 to the current record lows of 1.75 percent in November.

The central bank has signalled it will stand pat, possibly until 2020, to boost inflation.

The data also showed the unemployment rate slipped, in line with expectations, to 4.8 percent, lows last seen in the third quarter of 2016 – the weakest since the 2008 global financial crisis.

Economists said the fall in unemployment was largely due to the participation rate slipping 0.6 percentage points to 70 percent, meaning the overall pool of people looking for work was smaller and there were more jobs to go round.

“The RBNZ will remain extremely comfortable with its ultra-neutral stance, though the labour market is the key area we expect to challenge the current dormant inflation picture,” ANZ’s Borkin said.


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