A rate cut in New Zealand could arrive next week as another jobs report whiffs

Daniel Boczarski/Getty Images for Wizard World
  • New Zealand’s unemployment rate fell in early 2019, but not for good reasons.
  • People actually dropped out of the workforce while employment growth slowed. However, the size of the labour market fell faster than employment, resulting in the unemployment rate ticking lower.
  • Economists from Kiwibank and J.P. Morgan expect the RBNZ to cut official interest rates next week.
  • The RBNZ will announce its May monetary policy decision on May 8.

New Zealand’s unemployment rate fell in early 2019, but not for good reasons. People actually dropped out of the workforce while employment growth slowed.

According to Statistics New Zealand (StatsNZ), employment fell by 0.2% in the March quarter after seasonal adjustments, bucking expectations for an increase of 0.5%.

However, the unemployment rate still declined to 4.2%, down from 4.3% in the final three months of 2018 and a result that was in-line with market expectations.

The reason unemployment fell was that plenty of people dropped out of the workforce with labour market participation declining by a hefty 0.5 percentage points to 70.4%.

That reduced size of the workforce saw the total number of unemployed workers decline by 3.5% to 116,000. So unemployment fell, but only because more workers left the labour force.

StatsNZ said the number of New Zealanders of working age but not in the labour force rose to 1,164,000, the highest number since the data series began in 1986.


Adding to the downbeat jobs report, wages growth also remained weak.

Private sector salary and wage rates, including overtime payments, rose by just 0.3% during the quarter, down from 0.5% in final three months of 2018. The moderation saw annual wage growth hold steady at 2%, below the 2.1% level expected.

Jarrod Kerr, Chief Economist at Kiwibank, said that while at first glance the labour market appears to be pretty steady, particularly the level of unemployment, “appearances can be deceiving”.

“The concerning news was the drop in the participation rate. At face value, potential workers were seemingly discouraged. And employment growth has lost momentum,” he said.

And he thinks the recent softening in labour market conditions will see the Reserve Bank of New Zealand (RBNZ) act to support the economy. Kerr says a RBNZ rate cut is coming, and soon.

“With signs of a slowing economy, the RBNZ is unlikely to rest on its laurels,” he said. “We expect the RBNZ to deliver a 25 basis point cut to the cash rate next week.”

Kiwibank is not the only forecaster that believes the jobs report has sealed the deal for a rate cut on May 8.

“The facts we can have most faith in are that GDP growth has slowed, and in the last six months, the economy has added no jobs on net, while wage and price inflation have remained subdued,” said Ben Jarman at J.P. Morgan.

“The RBNZ has an easing bias, and the labour market data is failing their own test of running above maximum sustainable employment.

“We continue to expect a rate cut at next week’s meeting.”

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