Unemployment climbs to 5.6% while wage growth stalls behind inflation, testing the RBNZ's resolve
New Zealand's unemployment rate climbed to 5.6% in the June quarter, its highest level since September 2015, as labour market slack widened despite modest gains in employment and participation.
The result, confirmed by Stats NZ and above most bank forecasts of 5.4%, has sharpened debate among economists over how much further the Reserve Bank will need to lift the official cash rate to keep inflation in check.
Slack widens even as employment ticks up
Kiwibank economists Alexandra Turcu and Elliott Lowe pointed to a widening regional divide behind the headline figure, with unemployment sitting at just 3.7% in the South Island against 6.0% in the North Island, and Northland recording the country's highest regional rate at 8.8%, ahead of Auckland's 6.5%. The bank also flagged the underutilisation rate, which rose to 13.8%, its highest level in more than 12 years.
Employment rose 0.5% in the June quarter, a stronger outcome than banks had expected, but this was outweighed by an even larger lift in the participation rate, from 70.4% to 70.7%.
Westpac senior economist Michael Gordon said the scale of the co-movement was itself telling.
"Large co-movements in these measures are typically an indicator of sampling error in the survey, and indeed there is other evidence that labour demand was not as strong as these figures suggest," Gordon said, pointing to weaker signals from the Monthly Employment Indicator and Quarterly Employment Survey, the latter showing filled jobs and hours paid both falling over the quarter.
NZIER noted the same pattern showed up in hours worked nationally.
"This slack in the labour market is also reflected in a lift in the underutilisation rate and a 0.1% decline in the number of total hours worked over the quarter," the institute said, adding that low-skilled workers were bearing the brunt of softening labour demand while employers reported more difficulty filling skilled roles.
Wage growth fails to keep pace with inflation
Behind the regional divide, household budgets are facing a squeeze of their own: annual wage growth held at 2% for a second consecutive quarter, well below annual inflation of 4.1%, leaving households worse off in real terms.
NZIER said the muted wage outcome reduces one source of inflationary pressure for the Reserve Bank amid the ongoing Middle East-related cost shock.
"The 0.6% increase in the Labour Cost Index All Sectors was a touch above our expectations but still points to a low risk of a wage-price spiral," NZIER said.
Banks brace for more OCR hikes
ASB economist Wesley Tanuvasa said the data reinforced the bank's existing view rather than prompting a rethink.
"We do not relitigate our OCR view off today's data," Tanuvasa said, with ASB maintaining its forecast for a 3.25% year-end OCR through a steady sequence of hikes.
NZIER likewise continues to expect a follow-up 25-basis-point increase in September.
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