New Zealand just delivered a stunning jobs report, but some think it looks too good to be true

Photo: Tim P. Whitby/ Getty.

New Zealand employment growth surged before its federal election, recording the largest quarterly increase since mid-2016.

And that’s seen the national unemployment rate fall to the lowest level since late 2008.

According to Statistics New Zealand (StatsNZ), employment jumped by 2.2% over the quarter in seasonally adjusted terms, smashing expectations for an increase of 0.8%.

It was the largest percentage increase since the June quarter of 2016, and left total employment up 4.2% from a year earlier.

Over the year, employment surged by 102,700, with male and female employment rising by 52,400 and 50,300 respectively.

87,700 of those jobs were full-time.

By region, employment rose by 46,800 and 21,600 in Auckland and Waikato. The Bay of Plenty and Wellington also added 13,300 and 10,000 workers respectively.

This chart from Stats NZ shows the breakdown of employment growth over the year by sector.

Source: StatsNZ

With employment growth soaring, the national unemployment rate fell from 4.8% to 4.6%, leaving it at the lowest level since December 2008.

Male unemployment fell to 4.1%, down a whopping 0.6 percentage points from the June quarter, helping to offset a 0.4 percentage point increase in unemployment among females.

The underutilisation rate — capturing both unemployed and underemployed workers — held steady at 11.8%, leaving it down 0.5 percentage points from a year earlier.

67.8% of all New Zealanders of working age population are now in employment, the highest level on record.

Source: StatsNZ

Making the decline in the unemployment rate all the more impressive, it came despite an enormous lift in labour market participation which rose to 71.1%, or 54,000 persons.

That breezed past expectations for an increase to 70.2%, and was also a record high.

Topping off the strong report card, wages grew by 0.6% over the quarter, leaving the increase on a year earlier at 1.9%, the highest level in five years.

The alternate hourly earnings measure also rose by 1.2%, leaving the annual rate at 2.2%.

So employment and wages lifted strongly, and unemployment fell, an outcome that suggests the New Zealand labour market shot the lights out last quarter.

But is the unilateral strength too good to be true?

Paul Dales, chief Australia and New Zealand economist at Capital Economics, thinks it is, suggesting that volatility and one-off factors drove the sharp improvement, describing the report as a “statistical mirage”.

“The HLFS [Household Labour Force Survey] measure has become much more volatile since StatsNZ changed the way it measured it a year ago. This may mean that the seasonal adjustment process is up the spout.”

He points to the alternate QES measure of employment, which surveys businesses rather than households, which increased by a more modest 0.2% over the quarter, leaving the increase over the year at 2.5%.

“The QES measure is more representative of the true trend than the 4.1% rise in the HLFS measure,” he says.

And as for the acceleration in wage rates, Dales is also not convinced.

“The increase in the annual growth rates were entirely due to the health care workers pay settlement that began on 1st July,” he says.

“The labour cost index for the healthcare sector rose by 4.3% and its annual growth rate increased from 1.3% to 5.3%.

“Without that, wage growth would have stayed at 1.6%. So there is still no real sign that the previous strength of the economy is leading to higher wage growth.”

Ben Jarman, economist at JP Morgan, agrees with Dales’ assessment.

“The sector data show that outside of healthcare and social assistance, all wage growth was either stable or weaker, revealing no underlying acceleration,” he says.

Neither Jarman or Dales believes the report will have much of an impact on the outlook for interest rates.

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