NZ: Weak employment growth masked tightening in the labour market - ANZ

Analysts at ANZ explain that New Zealand’s demand for labour was soft in Q2 according to the HLFS as employment contracted 0.2% q/q, which was well below consensus expectations.

Key Quotes

“It is the first contraction in employment since Q3 2015. However, we feel this move should be heavily discounted. While one can easily make the case that it signals firms are finding it harder to fill vacancies, statistical noise will also be playing a role. It follows increases of 0.7% and 1.1% in Q1 and Q4 respectively. In the lock-up, Statistics NZ acknowledged that there could have been some under-coverage this quarter (without stating where that under-coverage was).”

“Alternative measures of employment were far stronger. QES filled jobs rose a solid 1.0% q/q. Hours worked and hours paid lifted 1.0% q/q and 0.9% q/q respectively, providing a better signal for Q2 GDP growth. Even the composition of HLFS employment had a better “feel”, with fulltime employment rising 0.7% q/q, contrasting with a 1.8% q/q plunge in part-time workers. Employment and hours worked across a number of measures are up around 3% on a year ago.”

“But the surprise wasn’t limited to employment. The participation rate fell 0.6%pts to 70.0%, which is down from an all-time high in Q1. It meant that even with solid working-age population growth (+0.5% q/q), the labour force contracted by 0.2% q/q.”

“The unemployment rate fell 0.1%pts to 4.8% – an 8½-year low. The underutilisation rate declined to 11.8% – also an 8½-year low. Both signal that despite the headline employment surprise, spare capacity in the labour market continues to be absorbed, albeit gradually.”

“The market (NZD) has taken the figures negatively. We think that is an overreaction.  With workers increasingly difficult to find, labour demand will naturally slow. And eventually this will manifest in stronger wage growth.”

“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.”