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Unemployment Rate at 3.9%: What Does The Labour Market Trends Tell Us?
New unemployment figures show New Zealand’s unemployment rate rose up to 3.9% in the September 2023 quarter – reaching the highest level since the June 2021 quarter.
In line with the consensus of bank economists, the unemployment rate rose 0.3% from 3.6% in the previous quarter. Meanwhile, the labour force participation rate decreased slightly to 72% from 72.4% in the previous quarter.
But what do these trends mean for businesses and employees in the months ahead?
A time of high labour force and economic uncertainties
According to ASB senior economist Mark Smith, the influx of international migrants and the cost-of-living crisis have pushed the labour force growth to a record high since 1986. A study by Stats NZ has recorded that the cost of living in New Zealand increased by 7.2% from June 202 to June 2023.
It’s forecasted that the nation will see labour market growth overtaking employment rates. Additionally, the unemployment rate is also said to be ‘on track’ to reach 5% by the end of the year. According to Smith, the labour cost growth is expected to stabilise for the year, with increased job competition and fewer indications of skill shortage.
“However, the RBNZ will be wary of persistently high wage inflation rates that are not productivity-driven. (We) expect the RBNZ to keep restrictive monetary settings for as long as necessary to hit its inflation target.”
“For example, we note that the NZIER’s September QSBO survey pointed to a marked reduction in perceived skilled shortages and a sharp reduction in the proportion of firms citing labour as a constraint on output.”
The latest unemployment trend was only loosely related to Jobseeker rates, with the number of people on Jobseeker continuing at the same pace as the previous quarter.
Kiwi businesses are hesitant to hire with the less than favourable national and global economic outlook. According to a recent study, 87% of Kiwi companies have faced increased operational costs in the last 12 months, with labour costs being one of the highest increases felt by businesses.
“The pace of hiring over the quarter is expected to slow given the catch-up from post-Covid worker shortages appears to have largely run its course….At the same time, firms are still reluctant to hire given the economic outlook and election-related uncertainties.”
For Mark Smith, these employment trends are likely to continue heading into 2024.
“With earlier worker shortages looking to have been mostly filled, it would take a large expansionary shock to cause the demand for labour to outstrip very strong growth in the labour supply.”
“We do not see anything on the horizon that will do this. Our work suggests that the employment-rich composition of strong net immigration and elevated living costs are key factors that will maintain very high worker attachment for a while yet.”
Wage cost inflation remains unchanged
Stats NZ reports that the Labour Cost Index (LCI) was at 4.3% in the September 2023 quarter, a figure that remains unchanged from last quarter. Salary and wages for the public sector increased 5.4% annually, standing at the highest rate since the December 1992 quarter.
According to Bryan Downes, business prices delivery manager for Stats.NZ, the rise in public sector wages has been ‘influenced by collective agreements for teachers, nurses, and the NZ Defence Force over the past year.’
“Public sector nurses accepted a new collective agreement in the first half of the year, while both primary and secondary school teachers ratified new collective agreements this quarter,” Downes said.
“The education and health industries contribute to just over half the LCI public sector.”
“Not a smoking gun”
According to ANZ economist Henry Russell, the labour market data is not seen as a ‘smoking gun,’ claiming it to be in line with the RBNZ's expectations.
“We don’t see [the] data as a smoking gun prompting the RBNZ to restart hikes at the November meeting, but nor do we see it as signalling ‘job done’.”
“We remain unconvinced that the labour market is turning fast enough to see domestic inflation dissipate in a reasonable time frame. We think that will require further tightening, with a 25bp hike in February,” he said.
“We expect the labour market to transition to an outright disinflationary state early next year.”
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