Fall in jobless rate expected for quarter

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 2008.

''What's surprised us to date is the extent to which the labour market has been able to accommodate this growth in jobs.

''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 Gordon said.

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 catch-up period.

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 growth.

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, he said.

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 markets.

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 quarter
• Wage inflation to remain subdued
• Workers 65 and over hold up participation rate
• Unemployment to fall to 5.5% by December

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