New Zealand unemployment spikes sharply

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  • New Zealand unemployment spiked sharply late last year as employment growth slowed.
  • Despite an increase in labour force underutilisation, labour costs edged higher thanks in part to new wage deals.
  • Despite the weak details of the report, changes to the survey methodology means there’s reason to be cautious about the message it conveys.

New Zealand unemployment spiked sharply late last year as employment growth slowed.

According to Statistics New Zealand (StatNZ), unemployment jumped to 4.3% in the December quarter after seasonal adjustments, lifting from the upwardly-revised 4.0% level seen in the three months to September.

The result was worse than the increase to 4% expected by financial markets.

“The unemployment rate for men rose to 4.4% while it was 4.2% for women,” said Jason Attewell, Labour Market and Household Statistics Senior Manager at StatsNZ.

“This was the first time since June 2010 that this rate was lower for women than men.”

StatsNZ

The increase in unemployment reflected a sharp slowdown in employment growth, something that led to an increase in the number of unemployed workers despite a fall in labour market participation from 71% to 70.9%.

The participation rate measures the proportion of New Zealand’s working-age population who are either in employment or actively seeking work.

Employment rose by 2,000 over the quarter, or 0.1%, well below the 12,000 increase in the size of the labour market over the same period. That led to unemployment increasing by 10,000 from Q3.

“Growth in the working-age population, up 25,000, outstripped growth in the labour force,” StatsNZ said.

“This resulted in a slight dip in the labour force participation rate.”

“The employment rate fell to 67.8%, down from its peak of 68.2% in the September 2018 quarter, due to stronger growth in the working-age population than for employment.”

Like the unemployment rate, the broader underutilisation rate also spiked, lifting to 12.1% from 11.4% in the prior quarter.

This measures the proportion of the labour force who are either unemployed or employed but would like to work more hours. It is also seen to have a stronger inverse relationship to wage pressures in the post-GFC era in developed economies.

However, despite signalling that labour market conditions eased last quarter, labour costs rose by 0.5% over the quarter, seeing the annual increase lift marginally to 1.9%.

“Private sector wages were up 2.0%, while public sector wages increased 1.7%,” StatsNZ said, referring to the change over the past year.

Despite the lift in unemployment, Ben Udy, economist at Capital Economics, says the Reserve Bank of New Zealand is unlikely to be unsettled by the result, at least not yet.

“The RBNZ has previously stated that this level of slack in the labour market is roughly consistent with employment around its maximum sustainable level so we doubt they will be concerned,” he says.

Udy also believes that despite the increase in reported underutilisation, wage growth will gradually lift further in the coming years courtesy of large minimum wage increases.

“The impacts of continued hikes in the minimum wage makes us think annual growth in labour costs will gradually rise to above 2.5% by 2020,” he says.

Michael Gordon, senior economist at Westpac Bank, said the latest data, notoriously volatile at the best of times, should be treated with added caution on this occasion.

“StatsNZ noted that there were some adjustments to the December quarter data, which means that some series should be treated with caution,” he says.

“This quarter the HLFS [Household Labour Force Survey] also included the survey of Working Life — in the past, there has been a tendency for some workers to say that they are out of the labour force in order to avoid answering the survey.

“This mostly affected the level of employment and the participation rate, with only a small impact on the unemployment rate. Without the adjustments, unemployment would have been 4.4% rather than 4.3%.”

Despite the increased uncertainty, traders weren’t prepared to wait around for specifics, slamming the Kiwi dollar lower in response to the report.

The NZD/USD currently trades at .6767, down 1.8% from Tuesday’s closing level.

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