Recent strong jobs growth is expected to have continued in
the three months ended June, lowering the unemployment rate
to 5.8% from 6%.
Employment growth to date has been largely met through rising
labour force participation, implying more slack in the labour
market and less upward pressure on wages than otherwise.
Statistics New Zealand releases the June labour market data
on Wednesday and Westpac senior economist Michael Gordon
expects wage inflation to have remained subdued against a
background of low inflation.
The New Zealand economy upturn had hit its straps over the
past year and there was plenty of evidence the jobs market
was following suit, he said.
Business confidence surveys had shown a lift in both actual
and intended hiring, online job advertisements were
continuing to rise and the Westpac McDermott Miller
employment confidence survey in June showed a further lift in
perceived job opportunities to their strongest level since
''What's surprised us to date is the extent to which the
labour market has been able to accommodate this growth in
''In particular, a record number of people joining the labour
force has probably kept the unemployment rate higher, and
almost certainly kept wage pressures lower, than they
otherwise would have been.''
While there were limits to how far the trend could go,
Westpac did not expect the official labour market surveys
this week to differ substantially from the recent story, Mr
Westpac expected a ''solid lift'' in the number of people
employed, equating to a rise of 4% from a year ago. It was
likely some of the strong growth in the year reflected a
In 2012 and early last year, employment growth in the
Household Labour Force Survey was flat, in contrast to other
labour market indicators at the time that suggested modest
Westpac was also forecasting unemployment to fall to its
lowest level in five years.
The participation rate had been unpredictable in recent
times, sliding from 68.7% to 67.9% in the year to March 2013
before bouncing to a record high of 69.3% by March this year,
Rising participation among workers aged 65 and over was
contributing to the recent high, along with tighter
eligibility criteria for the unemployment benefit.
''We think there's room for the participation rate to rise a
bit further over the next few years before the negative
effects of an ageing population start to dominate.
''But it's extremely unlikely it will continue to rise at the
same pace it has over the past year.''
From here, it meant the growing demand for workers would have
to be met from the ranks of the official unemployed. The
unemployment rate could fall to 5.5% by the end of the year
and to 5% next year, Mr Gordon said.
The Labour Cost Index, Westpac's preferred measure of wage
inflation, had slowed over the past two years and
private-sector ordinary-time labour costs rose only 1.6% in
the year to March.
That was most likely due to soft inflation in recent years,
combined with the existing degree of slack in the labour
When workers did not have scarcity value, it was difficult to
negotiate much more than cost-of-living increases, he said.
The situation would evolve as unemployment fell but any
substantial rise in wage pressures was more likely a story
for next year.
• Unemployment to have fallen to 5.8% in June
• Wage inflation to remain subdued
• Workers 65 and over hold up participation
• Unemployment to fall to 5.5% by December